Question

The stockholders’ equity for Dairy Land Drive-Ins (DL) on July 13, 2015, follows:
Stockholders’ Equity
Common stock, $0.75 par, 2,700,000 shares
authorized, 650,000 shares issued .........$ 487,500
Paid-in capital in excess of par—common ...... 1,512,000
Retained earnings ................. 7,123,000
Accumulated comprehensive income (loss) ....... (195,000)
Total stockholders’ equity ............ $ 8,927,500
On July 13, 2015, the market price of DL common stock was $17 per share. Assume DL declared and distributed a 20% 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 DL had a cash balance of $642,000 on July 14, 2015. What is the maximum amount of cash dividends DL can declare?



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  • CreatedJuly 25, 2014
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