Question

The condensed balance sheet of Laporte Corporation reports the following: P14-1 A LAPORTE CORPORATION Balance Sheet (partial) June 30, 2017 Total assets $12,000,000 Liabilities and shareholders' equity Total liabilities S 4,000,000 Shareholders' equity Common shares, unlimited number authorized, 400,000 issued Retained earnings Total shareholders' equity 2,000,000 6,000,000 8,000,000 Total liabilities and shareholders' equity $12,000,000 The market price of the common shares is currently $30 per share. Laporte wants to assess the impact of three possible alternatives on the corporation and its shareholders. The alternatives are: l. Payment of a $1.50 per share cash dividend 2, Distribution of a 5% stock dividend 3. A 3-for-1 stock split Instructions (a) For each alternative, determine the impact on (1) assets, (2) liabilities, (3) common shares, (4) retained earnings, (5) total shareholders' equity, and (6) the number of shares. (b) Assume a Laporte shareholder currently owns 1,000 common shares at a cost of $28,000. What is the impact of each alternative for the shareholder, assuming that the shares' market price changes proportionately with the alternative?

Answer 1

Answer:

Given that:

(a)

Alternatives Impact on NIL $600,000 NIL Assets NIL NIL NIL Liabilities $100,000 NIL NIL Common shares $600,000 $100,000 NIL Retained Earnings NIL $600,000 NIL Total Shareholders Equity 200000 20000 NIL Number of shares Positive sign indicates Increase Negative sign indicates Decrease NIL indicates No Impact Dividend paid = 400000 shares* $1.5 = $600000 20000 shares No.of shares issued as stock dividend = 400000 shares * 5% A three-for-two stock split leads to total issued shares = (400000 shares / 2) * 3 = 600000 shares

Answer b $1.50 / $5-30% Cash dividend % Current share price $30 Alternatives Impact on shareholder 500 50 NIL Number of shares NIL $1,500.00 NIL Cash in hand $10.00 $1.50 $9.00 Share price Positive sign indicates Increase Negative sign indicates Decrease NIL indicates No Impact A three-for-two stock split leads to total Shares held (1000 shares /2) 3- 1500shares $20 per share New share price per share after split ($30 2)/3