Can someone tell me why increase, decrease or no effect? Thank you! ent MESSAGE

Question

Can someone tell me why increase, decrease or no effect? Thank you! ent MESSAGE MY INSTRUCTOR FULL SCREEN PRINTER VERSION BACK Problem 11-6A Your answer is correct. The condensed statement of financial position of Laporte Corporation reports the following amounts: LAPORTE CORPORATION Statement of Financial Position (partial) June 30, 2015 Total assets Total liabilities Shareholders' equity $16,468,100 $6,108,600 Common shares, unlimited number authorized, 405,300 issued Retained earnings $2,026,500 8,333,00010,359,500 $16,468,100 Total liabilities and shareholders' equity The common shares are currently trading for $28 per share. Laporte wants to assess the impact of three possible alternatives 1. Payment of a $1.60 per share cash dividend 2. Distribution of a 4% stock dividend 3. A 3-for-2 stock split Determine the impact of each of the above alternative on each of the following.

Explanation / Answer

1) when cash dividend is paid we make following entry Debit Retained earnings XXX cash XXX so we see cash is paid hence decrease in cash there is no liabilities account involved since cash dividend is distribution of profit retained earnings decreases , because retained earnings is part of stockholders equity so it will also decrease with the same amount since payment is made in form of cash no number of shares or common shares are affected 2) when stock dividend is declared Debit Credit retained earnings XXX common stock XXX paid in capital in excess of par xXX like cash dividend stock dividend is also distributed from retained earnings decreases however instead of cash stock are distributed to shareholders hence decrease in retained earnings and increase in paid in capital the net affect of which is nil on stockholders equity since no asset and liabilities involved hence no affect 4% stock dividend will increase common shares and number of common shares 3) 3 -2 stock split means for every 2 shares held 3 will be given so number of shares will increase but since par value will be reduced in same proportion the net affect will be nil on stockholders equity and no entry is passed for stock split only the shares increases and par value decreases hence the total of stockholders Equity remain same ,therefore no affect on other accounts

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