Dated: November 1”, 2011 ‘Abdul Ghaffar Bhatti Sec 2 Principles of Accounting I ASSIGNMENT 3 Joseph’s share in the assets as reported in the balance sheet of Shadetree Corporation before the stock dividend action is $48,000 (no of shares x book value = 10,000 x 5,760,000/120,000). After the stock dividend action, his share would stay the same at $48,000 (12,000 x 5,760,000/144,000). The 20% stock dividend does not have any change in Joseph’s ownership of net assets of the company as the increase in the stock decreases the book value per share that results in a constant net ownership of the assets, for an investor. The market value of Joseph’s stock differs from the amount of net assets per share shown in the accounting records because in determining the market value, factors such as future growth potential, profitability expectations etc are taken into consideration by the investors. The market value changes on a day to day basis according to the demand and supply trends in the stock market. Joseph received a cash dividend of Rs. 3 in the current year and that of Rs 3.6 in prior years. The decreased dividend amount of current year did not have any effect on the total cash dividend received by Joseph because of the increase in number of shares he owned due to the declaration of stock dividend. As a result, Joseph received a cash dividend of Rs, 36,000 in the current and prior years. The market price of a share fell from $60 to $50 on the day the stock went ex-dividend, but this did not represent any loss to Joseph because the 20% decrease in market price of a share was due to the result of 20% increase in the number of shares and therefore the total market price of Joseph’s shares remained constant at $60,000 (50x12,000 after stock div, 60x10,000 before stock div), If the Shadetree Corporation had announced that it would continue its regular cash dividend of $3.60 per share on the increased number of shares outstanding, the market price per share would remain at $60 instead of falling to $50 because the increased number of shares with a constant cash dividend would mean a profit for the investors and they would be happy to pay same price per share despite the increase in the number of shares in the market