The condensed balance sheet of Laporte Corporation reports the following:

The market price of the common shares is currently $30 per share. Laporte wants to assess the impact of three possible alternatives on the corporation and its shareholders. The alternatives are:
1. Payment of a $1.50 per share cash dividend
2. Distribution of a 5% stock dividend
3. A 3-for-1 stock split
Instructions
(a) For each alternative, determine the impact on (1) assets, (2) liabilities, (3) common shares, (4) retained earnings, (5) total shareholders' equity, and (6) the number of shares.
(b) Assume a Laporte shareholder currently owns 1,000 common shares at a cost of $28,000. What is the impact of each alternative for the shareholder, assuming that the shares' market price changes proportionately with the alternative?
TAKING IT FURTHER
What are the advantages and disadvantages to the company of a stock split?

Transcribed Image Text:

LAPORTE CORPORATION Balance Sheet (partial) June 30, 2017 Total assets $12,000,000 Liabilities and shareholders' equity Total liabilities 4,000,000 Shareholders' equity Common shares, unlimited number authorized, 400,000 issued Retained earnings Total shareholders' equity 2,000,000 6,000,000 8,000,000 $12,000,000 Total liabilities and shareholders' equity