Aquamanu Developments is authorized to issue 500,000 shares. To date, the company has 185,000 shares issued and 150,000 outstanding. Aquamanu is considering declaring a dividend to its common shareholders. Management is recommending the board of directors to consider the following options at the next meeting scheduled for March 1:

1. The boards of directors should approve a motion directing the company to pay a dividend of $0.40 per share on May 1 to shareholders of record on April 15 or

2. The board should approve a motion directing the company to declare a 10% stock dividend. Aquamanu would distribute one common share for every 10 common shares currently held. The company’s common shares are currently selling for $50 per share.

Required

a. Prepare any necessary journal entries for the cash dividend on March 1, April 15, and May 1.

b. Prepare the entry to record the stock dividend, assuming that the dividend is declared on March 1 and is distributed on May 1.

c. Describe how each dividend would affect Aquamanu’s net debt as a percentage of total capitalization.

d. Which of the two dividends would have an impact on the share price, if any? Why?