Travanti Company has a history of paying cash dividends on its common stock. Although the firm has

Question:

Travanti Company has a history of paying cash dividends on its common stock. Although the firm has been profitable this year, the board of directors is planning construction of a second manufacturing plant. To reduce the amount that they must borrow to finance the expansion, the directors are contemplating replacing their usual cash dividend with a 40% stock dividend. The board is unsure about a stock dividend's effect on the company's balance sheet and has requested your assistance.

Required

1. Write a statement to explain the effect the stock dividend has on the financial statements of Travanti Company.

2. A group of common stockholders has contacted the firm to express its concern about the effect of the stock dividend and to question the effect the stock dividend may have on the market price of the stock. Write a statement to address the stockholders' concerns.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...