Question

Problems: Set B Compare impact of cash dividend, wock dividend. and stock split (LOI) AP -IB The condensed balance sheet of Erickson Corporation of End Corporation reports the following ERICKSON CORPORATION Balance Sheet (partial) fanuary 31, 2017 Total assets Liabilities and shareholders' equity Liabilities Shareholders' equity $2,500.00 Common shares, unlimited number wuthorized. 500,000 issued $3,000,000 3.500.000 6.500m Retained earnings Total liabilities and shareholders' equiry The market price of the common shares is currently $30 per share. Erickson wants to assess the three possible alternatives on the corporation and its shareholders. The alternatives are: 1. Payment of a $1.50 per share cash dividend 2. Distribution of a 5 stock dividend 3. A 2.for. I wock split Instrutions (a) For each alternative, determine the impact on (1) assets. (2) liabilities, (3) common shares. (4) earnings. (5) total shareholders' equity, and (6) the number of shares. (b) Assume an Erickson shareholder currently owns 2,000 common shares at a cost of $50,000. What is the input of each alternative for the shareholder, assuming that the market price of the shares changes proportionat with the alternative? TAKING IT FURTHER What is the purpose of a reverse stock splitt When might a company take this active P14-28 On December 31, 2016, Asaad Corporation had the following shareholders' equity accounts cord and post transactions epare shareholders' equity ction. (LOI) AP ASAAD CORPORATION Balance Sheet(partial) December 31, 2016

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ANS: P14-16 @ # - Amount in $ Alternative 1: payment of $1.50 per share cash dividend # Impact on : 12) Assexsi will reduce by $7,50,000, as the dividenck has paid out of cash. 2) Liabilities : Nor impact. (3) Common Chanes ? No-impaut. Retained Earnings will reduce by $ 750000, as dividend is alivay pay's out of retain en елпі995 - (5) Total share holders equity will reduce by $ 7,50000 as retained earnings comes under the heading of total share holders equity. (6) The number of share: No-impact- Ą Alternative-2 & Distribution of a 54 Stock dividendi Ho impact on i (1) Assets i 10-impact. (2) Liabilities No-impact. (3) common shares: number of shares will increase by 25000 500000 x 54), as a resuelt value o.f share is also increase by $ 150000 ($390,0000 857) (4) Retained Earnings: will reducech by $150000

16) Tot012 Shane hoWeres equity : will increase by $150,000. (6) the number of shame : Will increase by 25000 NOS Total number of share will be 525000 Noi - # Alternative-3: A 2- .for-1 Stock split : (L) ASSex No-impack. (2) Liabilities; No-- impact (3) common shares; number of shares will increase ling - 500000 Nos , whereas the value will remain same. 14) Retained Earnings: No-impalt (5) Toral Shareholder's equity : NO-impaut. (6) the number of share will increase by 500,000 NOS S and total number of shames will be 1000000 Nos (b) The following's impact will be for the each alternatives : current situation of the share holdero Number of share's : 2000 Nos. cost of shares $50000 cost price per share : $ 25 ($50000/2000) market price per share : $30 Marker value of Shane : $60000 ( 2000 $ 30) & Alternative-1: Payment of $ 1.50 per shane cash dividendo No-impact on number of shares anch varue of shared

Alternatye -2 : Distribution of a 57 stock dividend Number of shares ( 2000 + (2000 x 51}}} : 2100 was Cost of sharu ( NO - Impaun) :$59000 Market Yalue of Shanes 12100 x $ 30) : $63000 lock split. # Reverse stoor Shien is nothing, but only the the oppost purpose : Reverde stock split is a Reverse stock split is a reduction of total number of Shanes 14 is typically based on a;- predetermined ratio. The company takes this action when i & To avoid de listing of stock, if the stock price goes to below the centain limit of price A 70 Improve Shane price
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