The stockholders· equity section of Pillar Corporation ·s comparative balance sheet at the end of 2018 and 2019 is presented below. It is part of the financial data just reviewed at a stockholders' meeting.The following items were also disclosed at the stockholders· meeting: net income for 2019 was $1,220,000; a 10% stock dividend was issued December 14, 2019; when the stock dividend was declared. the market value was $28 per share: the market value per share at December 31, 2019, 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 2019. 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.

REQUIRED

Prepare brief but reasonably complete answers to the following questions:

a. What did Pillar do with the cash proceeds from the: stock dividend issued in December?

b. What was my book value per share at the end of 20 18 and 2019?

c. I owned 7,500 shares of Pillar in 2018 and have not sold any shares. How much more or less of the corporation do I own at December 31, 2019, and what happened to the market value of my interest in the company?

d. 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?

e. Instead of a stock dividend, why didn't you declare a cash dividend and let us buy the new shares that were issued?

f. Why are you cutting back on the dividends I receive?

g. If you have $2,000,000 put aside in retained earnings for the new plant addition, which will cost $2,300,000, why are you borrowing $500,000 instead of just the $300,000 needed?

Transcribed Image Text:

December 31, 2019 December 31, 2018 Common stock, $10 par value, 600,000 shares authorized; issued at December 31, 2019, 275,000 shares: 2018, 250.000 shares. $ 2,750,000 4,575,000 $2,500,000 .... Paid-in capital in excess of par.... Retained earnings (see Note).. 4,125.000 2.825.000 2.960.000 Total stockholders' equity... $10,285,000 $9.450.000 ... .