Multigrain Health Foods Inc. is authorized to issue 5,000,000 common shares. In
ID: 2427755 • Letter: M
Question
Multigrain Health Foods Inc. is authorized to issue 5,000,000 common shares. In its initial public offering during 2010, Multigrain issued 500,000 common shares for $7.00 per share. Over the next year, Multigrain’s share price increased and the company issued 400,000 more shares at an average price of $8.50.
During the next seven years, from 2010 to 2016, Multigrain earned net income of $920,000 and declared and paid cash dividends of $140,000. A 10% stock dividend was distributed to the shareholders in 2016 on the shares outstanding. The market price was $8.00 per share when the stock dividend was distributed. At December 31, 2016, the company has total assets of $14,500,000 and total liabilities of $6,820,000.
Show the computation of Multigrain’s total shareholders’ equity at December 31, 2016. Present a detailed computation of each element of shareholder’s equity.
Explanation / Answer
The statement of stockholder equity is presented in the table below. Only thing that has to be explained is the treatment of stock dividend.
Number of shares = 500000 + 400000 = 900000 shares
Stock dividend = 10% * 900000 = 90000 shares
Value of stock dividend = 90000 * 8 = 720000
Now the stock dividend does not change the total stockholder equity but changes the components of stock holder equity. Retained earnings would be debited by 720000 and share capital would be credited by 720000
Statement of Stockholder equity Particulars Amount Common stock Capital 500000 shares @ 7 each 3,500,000.00 400000 shares @ 8.5 each 3,400,000.00 Stock Dividend 90000 shares 720,000.00 7,620,000.00 Retained Earnings Net income 920,000.00 Less: Dividend 140,000.00 Less: Stock dividend 720,000.00 60,000.00 Total stockholder equity 7,680,000.00Related Questions
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