Question

During the year ended November 30, 2017 Aguanish Inc. (Aguanish) reported the following equity events:
March 15, 2017 10 percent stock dividend May 15, 2017 Annual preferred dividend of $3 per share July 15, 2017 Four-for-one stock split August 15, 2017 $1 dividend per common share
The equity section of Aguanish's balance sheet on November 30, 2016, was as follows:
Preferred shares (authorized, issued, and outstanding: 200,000)............... $ 4,000,000
Common shares (unlimited number of shares authorized; 2,000,000 issued and outstanding)... 18,500,000
Retained earnings ............................... 23,450,000
Net income for fiscal 2017 was ........................... $6,500,000.
In previous years, Aguanish paid its com mon shareholders annual dividends of $5 per share.

Required:
a. Prepare Aguanish's shareholders' equity section on November 30, 2017.
b. Calculate basic earnings per share for fiscal 2017. What would EPS have been had the stock split and stock dividend not occurred?
c. As an Aguanish shareholder, what is your reaction to the reduction in the per share dividend from $5 per share to $1 per share?
d. The market value of Aguanish's shares on November 30, 2017 was $120 per share.
What do you estimate the market price of the shares would have been had the stock dividend and stock split not occurred? Explain your answer.
e. Calculate Aguanish's price-to-book ratio on November 30, 2017. What would the price-to-book ratio have been had the stock split and stock dividend not occurred? Explain your answer.
f. From a shareholder's perspective, what are the benefits and drawbacks of the stock dividend and stock split?



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  • CreatedFebruary 26, 2015
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