The Rupley Company declared and distributed a 5% stock dividend. The stockholders’ equity before the dividend was as follows:

Common stock, 5,000,000 shares, $1 par .......$ 5,000,000

Additional paid-in capital ............ 20,000,000

Retained earnings ............... 50,000,000

Total stockholders’ equity ...........$75,000,000

The market price of Rupley’s shares was $10 when the stock dividend was distributed. Rupley paid cash of $15,000 in lieu of issuing fractional shares.

1. Prepare the journal entry for the declaration and distribution of the stock dividend.

2. Show the stockholders’ equity section after the stock dividend.

3. How did the stock dividend affect total stockholders’ equity? How did it affect the proportion of the company owned by each shareholder?