Question

The shareholders’ equity section of Carswell Corporation’s comparative statement of financial position at the end of 2016 and 2015 was presented as follows at a recent shareholders’ meeting:
The following items were also disclosed at the shareholders’ meeting:
• Net income for 2016 was $666,000.
• A 16% stock dividend was issued on December 14, 2016, when the market value was $18 per share.
• The market value per share on December 31, 2016, was $16.
• Management has put aside $900,000 and plans to borrow $200,000 to help finance a new plant addition, which is expected to cost a total of $1 million.
• The customary $1.74 per share cash dividend was revised to $1.50 for the cash dividend declared and paid in the last week of December 2016.
As part of their shareholders’ goodwill program, management asked shareholders to write down any questions they might have concerning the company’s operations or finances. As assistant controller, you are given the shareholders’ questions.
Required:
Prepare brief but reasonably complete answers to the following questions from shareholders.
a. What did Carswell do with the cash proceeds from the stock dividend issued in December?
b. I owned 5,000 shares of Carswell in 2015 and have not sold any shares. How much more or less of the corporation do I own on December 31, 2016? What happened to the market value of my interest in the company?
c. I heard someone say that stock dividends don’t give me anything I didn’t already have. Are you trying to fool us? Why did you issue one?
d. Instead of a stock dividend, why didn’t you declare a cash dividend and let us buy the new shares that were issued?
e. Why are you cutting back on the dividends I receive?
f. If you have $900,000 put aside for the new plant addition that will cost $1 million, why are you borrowing $200,000 instead of just the missing $100,000?


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  • CreatedJune 12, 2015
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