Columbia Paper has the following stockholders’ equity account. The firm’s common stock has a current market price of $30 per share.
Preferred stock .............$100,000
Common stock (10,000 shares at $2 par) ...20,000
Paid-in capital in excess of par ........280,000
Retained earnings .............100,000
Total stockholders’ equity .......$500,000
a. Show the effects on Columbia of a 5% stock dividend.
b. Show the effects of (1) a 10% and (2) a 20% stock dividend.
c. In light of your answers to parts a and b, discuss the effects of stock dividends on stockholders’ equity.