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Recording Cash and Stock Dividends

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?

Solution Summary

Recording cash and stock dividends are examined.