Pop Corporation owns 300,000 of 360,000 outstanding shares of Son Corporation, and its $8,700,000 Investment in Son account balance on December 31, 2016, is equal to the underlying equity interest in Son. Son's stockholders' equity at December 31, 2016, is as follows (in thousands):
Common stock, $10 par, 500,000 shares authorized,
400,000 shares issued, of which 40,000 are treasury shares .............. $ 4,000
Additional paid-in capital ..................................................... 2,500
Retained earnings .............................................................. 5,500
..................................................................................... 12,000
Less: Treasury shares at cost ................................................ 1,560
Total stockholder's equity .................................................... $10,440
Because of a cash shortage, Pop decided to reduce its ownership interest in Son from a 5/6 interest to a 3/4 interest and is considering the following options:
Option 1. Sell 30,000 of the 300,000 shares held in Son.
Option 2. Instruct Son to issue 40,000 shares of previously unissued stock to the public.
Option 3. Instruct Son to reissue the 40,000 shares of treasury stock to the public.
Assume that the shares can be sold at the current market price of $50 per share under each of the three options and that any tax consequences can be ignored. Pop's stockholders' equity at December 31, 2016, consists of $10,000,000 par value of common stock, $3,000,000 additional paid-in capital, and $7,000,000 retained earnings.
REQUIRED:
Compare the consolidated stockholders' equity on January 1, 2017, under each of the three options.