On March 1, 2011, Algae Corporation began operations with a charter it received from the state that authorized 50,000 shares of $4 par value common stock. Over the next quarter, the company engaged in the transactions that follow.

Mar. 1 Issued 15,000 shares of common stock, $100,000.

2 Paid legal fees associated with obtaining the charter and starting up and organizing the corporation, $12,000.

Apr. 10 Issued 6,500 shares of common stock, $65,000.

15 Purchased 2,500 shares of common stock, $25,000.

May 31 The board of directors declared a $0.20 per share cash dividend to be paid on June 15 to shareholders of record on June 10.

REQUIRED

1. Record the above transactions in T accounts.

2. Prepare the stockholders’ equity section of Algae’s balance sheet on May 31, 2011. Net income earned during the first quarter was $15,000.

3. What effect, if any, will the cash dividend declaration on May 31 have on Algae’s net income, retained earnings, and cash flows?