The stockholders’ equity section of Warm Ways Inc.’s balance sheet at January 1, 2014, shows:
Preferred stock, $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 2014, declared and paid the preferred stock cash dividend, and declared and paid a $0.25 per share cash dividend on 1 million shares of common stock. The company also declared and distributed 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 2014.
2. If the company’s common stock was valued at $135 per share when the stock dividend was declared, what would the stock price be just after the dividend shares were distributed?

  • CreatedSeptember 10, 2014
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