(Learning Objective 4: Recording a stock dividend and reporting stockholders’ equity) The stockholders’ equity for Dairy Queen Drive Ins (DQ) on December 31, 2009, follows (adapted).
|
Stockholders’ Equity |
|
|
Common stock, $0.10 par, 2,000,000 shares authorized, 500,000 shares issued |
$ 50,000 |
|
Paid in capital in excess of par common |
962,000 |
|
Retained earnings |
7,122,000 |
|
Other equity |
(195,000) |
|
Total stockholders’ equity |
$7,939,000 |
On April 15, 2010, the market price of DQ common stock was $17 per share. Assume DQ distributed a 10% stock dividend on this date.
Required
1. Journalize the distribution of the stock dividend.
2. Prepare the stockholders’ equity section of the balance sheet after the stock dividend. (Challenge)
3. Why is total stockholders’ equity unchanged by the stock dividend?
4. Suppose DQ had a cash balance of $540,000 on April 16, 2010. What is the maximum amount of cash dividends DQ can declare?