Question

Question 4 (20 marks) Multigrain Health Foods Inc. is authorized to issue 3,000,000 common shares. In its initial public offering during 2010, it issued 300,000 common shares for $5.00 per share. Over the next year Multigrain' share price increased, and the company issued 450,000 additional shares at an average price of $8. During the next seven years, from 2010 to 2016, It earned a net income of $1,190,000 and declared and paid cash dividends of $95,000. A 10% stock dividend was distributed to the shareholders in 2016 on the shares outstanding. The market price was $12 per share when the stock dividend was distributed. At December 31, 2016, the company has total assets of $9,980,000 and total liabilities of $3,785,000. Required: Show the computation of the total shareholder's equity at December 31, 2016. Present a detailed computation of each element of shareholder's equity. (you are required to provide the breakdown of C/S and S/E).

Answer 1

Computation of Number of shares, Stock dividend, Value of stock dividend.

a. Number of shares =300,000 + 450,000 = 750,000 Shares.

b. Stock dividend = 10% * 750,000 = 75,000 Shares

c. Value of stock dividend = 75000 * 12= $ 900,000

Multigrain’s Total shareholders’ equity at December 31, 2016.

Particulars	Amount ($)
Common stock capital
300,000 shares at $ 5	1500,000
450,000 shares at $ 8	3600,000
Stock dividend	900,000
A	6000,000
Retained earnings
Net income	1190,000
Less: cash dividend	(95,000)
	1095,000
Less: Stock dividend	(900,000)
B.	195,000
Total shareholders’ equity (A+B)	6,195,000