Question

The condensed balance sheet of Oriole Corporation reports the following:

ORIOLE CORPORATION Balance Sheet (partial) June 30, 2021
Total assets		$11,560,000
Liabilities and shareholders’ equity
Total liabilities		$3,736,000
Shareholders’ equity
Common shares, unlimited number authorized, 440,000 issued		1,760,000
Retained earnings		6,064,000
Total shareholders’ equity		7,824,000
Total liabilities and shareholders’ equity		$11,560,000

The market price of the common shares is currently $18 per share. Oriole wants to assess the impact of three possible alternatives on the corporation and its shareholders. The alternatives are:

1.		Payment of a $1.30 per share cash dividend
2.		Distribution of a 6% stock dividend
3.		A 3-for-1 stock split

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.

				Cash Dividend			Stock Dividend			3-for-1 Stock Split
(1)		Assets		$

$

$

(2)		Liabilities		$

$

$

(3)		Common shares		$

$

$

(4)		Retained earnings		$

$

$

(5)		Total shareholders' equity		$

$

$

(6)		Number of shares

Answer 1

Solution:

	cash dividend	Stock dividend	3-for-1 stock split
Assets	-$572,000	NIL	NIL
Liabilities	NIL	NIL	NIL
Common shares	NIL	$475,200	NIL
Retained earnings	-$572,000	-$475,200	NIL
Total shareholders equity	-$572,000	NIL	NIL
Number of shares	NIL	26,400	660,000

Working:

Dividend paid =440,000*$1.3 =$572,000

No of shares issued as stock dividend =440,000*6% =26,400*18

=$475,200

A three for two stock split leads to total issued shares =(440,000/2)*3 =660,000

Note:

positive sign indicate increase

negative sign indicates decrease

NIL indicates No impact

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