Learning Objectives 4, 6: Record a stock dividend and report stockholders’ equity) The stockholders’ equity for Perfect Desserts Drive-Ins (PD) on December 31, 2012, follows:
Common stock $.75 par, 2,700, 000 shares authorized, 500,000 shares issued $375,000
paid in capital in excess of par – common 512,000
Retained earnings 7,100,000
Accumulated comprehensive income loss (195,000)
Total Stockholder’s equity $7,792,000
On July 13, 2013, the market price of PD common stock was $17 per share. Assume PD distributed a 25% stock dividend on this date.
? Requirement
1. Journalize the 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 PD had a cash balance of $600,000 on July 14, 2013. What is the maximum amount of cash dividends PD can declare?
