Question

The stockholders’ equity for Dairy King Drive-Ins (DK) on April 16, 2015, follows:
Stockholders’ Equity
Common stock, $0.30 par, 2,600,000 shares
authorized, 750,000 shares issued ....... $ 225,000
Paid-in capital in excess of par—common ....... 1,614,400
Retained earnings ................... 7,154,000
Accumulated other comprehensive income (loss) .. (200,000)
Total stockholders’ equity .............$ 8,793,400
On April 16, 2015, the market price of DK common stock was $20 per share. Assume DK declared and distributed a 15% stock dividend on this date.

Requirements
1. Journalize the declaration and distribution of the stock dividend.
2. Prepare the stockholders’ equity section of the balance sheet after the stock dividend.
3. Why is total stockholders’ equity unchanged by the stock dividend?
4. Suppose DK had a cash balance of $610,000 on April 17, 2015. What is the maximum amount of cash dividends DK can declare?



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  • CreatedJuly 25, 2014
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