Recording Cash and Stock Dividends
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The stockholders' equity section of Warm Ways Inc's balance sheet at January 1, 2011, shows:
Preferred dividend, $100 par value, 10% dividend,
50,000 shares issued and outstanding $5,000,000
Common stock, $6 par value, 1 million shares issued
and outstanding 6,000,000
Paid-in capital in excess of par 119,000,000
Retained earnings 50,000,000
Total stockholders' equity $180,000,000
Warm Ways reported net income of $9,250,000 for 2011, declared and paid the preferred stock cash dividend, and declared and paid a $0.25 par share cash dividend on 1 million shares of common stock. The company also declared and paid a 10% stock dividend on its common shares. When the stock dividend was declared, 1 million common shares were outstanding, and the market price of common stock was $135 per share.
1. Prepare journal entries to record the three dividend "events" that took place during 2011.
2. If the company's common stock was value at $135 per share when the stock dividend was declared, what would the stock price be just after the dividend shares were distributed?
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Solution Summary
Recording cash and stock dividends are examined.
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