Problem 11-5A Dividends and Stock Splits

On January 1, 2014, Svenberg Inc.’s Stockholders’ Equity category appeared as follows:

 

Preferred stock, $80 par value, 8%,    1,000

shares  issued and outstanding                                    $      80,000 Common stock,  $10 par value, 10,000   shares

 

issued  and outstanding	100,000
Additional paid-in capital—Preferred	60,000
Additional paid-in capital—Common	225,000
Total contributed capital	$   465,000
Retained earnings	1,980,000
Total  stockholders’ equity	$2,445,000

 

The preferred stock is noncumulative and nonparticipating. During 2014, the following transac- tions occurred:

a.      On March 1, declared a cash dividend of $6,400 on preferred stock. Paid the dividend on April 1.

b.      On June 1, declared an 8% stock dividend on common stock. The current market price of the common stock was $26. The stock was issued on July 1.

c.       On September 1, declared a cash dividend of $0.70 per share on the common stock; paid the dividend on October 1.

d.      On December 1, issued a 3-for-1 stock split of common stock, when the stock was selling for

$30 per share.

Required

1.        Explain each transaction’s effect on the stockholders’ equity accounts and the total stock- holders’ equity.

2.        Develop the Stockholders’ Equity category of the balance sheet. Assume that the net income for the year was $720,000.

3.        Write a paragraph that explains the difference between a stock dividend and a stock split.