The stockholders’ equity section of Pillar Corporation’s comparative balance she

Question

The stockholders’ equity section of Pillar Corporation’s comparative balance sheet at the end of 2013 and 2014 is presented below. It is part of the financial data just reviewed at a stockholders’ meeting.

2,500,000

Paid-in Capital in Excess of Par...............

Retained Earnings (see Note).................

Note: Availability of retained earnings for cash dividends is restricted by $2,000,000 due to a planned plant expansion.

The following items were also disclosed at the stockholders’ meeting: net income for 2014 was $1,220,000; a 10% stock dividend was issued December 14, 2014; when the stock dividend was declared, the market value was $28 per share; the market value per share at December 31, 2014, was $26; management plans to borrow $500,000 to help finance a new plant addition, which is expected to cost a total of $2,300,000; and the customary $1.54 per share cash dividend had been revised to $1.40 when declared and issued the last week of December 2014. As part of its investor relations program, during the stockholders’ meeting management asked stockholders to write any questions they might have concerning the firm’s operations or finances. As assistant controller, you are given the stockholders’ questions.

I heard someone say that stock dividends don’t give me anything I didn’t already have. Why did you issue one? Are you trying to fool us?

December 31, 2014 December 31, 2013 Common Stock, $10 Par Value, 600,000 shares authorized; issued at December 31, 2014, 275,000 shares; 2013, 250,000 shares ..................... $2,750,000

2,500,000

Paid-in Capital in Excess of Par...............

4,575,000 4,125,000

Retained Earnings (see Note).................

2,960,000 2,825,000 Total Stockholders’ Equity ................... $10,285,000 $9,450,000

Explanation / Answer

A dividend is a rise within the quantity of shares of a corporation with the new shares being given to shareholders.

After the stock dividend, the worth can stay an equivalent, however the share worth can decrease to regulate for the dividend payout. The advantage of a dividend is choice. The stockholder will either keep the shares and hope that the corporate are going to be able to use money not paid come in a cash dividend to earn a far better rate of come back, or the stockholder might additionally sell a number of the new shares to form his or her own money dividend. the most important advantage of a dividend is that shareholders don't usually ought to pay taxes on the worth.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.