Question - Douglas McDonald Company's balance sheet included the following shareholders' equity accounts at December 31, 2015:
Paid in capital:
Common stock, 900 million shares at $1 par = $900
Paid-in capital - excess of par = $15,800
Retained earnings = 14,888
Total shareholders' equity = $31,588
On March 16, 2016, a 4% common stock dividend was declared and distributed. The market value of the common stock was $21 per share. Fractional share rights represented 2 million equivalent whole shares. Cash was paid in lieu of the fractional share rights.
Required:
1. What is a fractional share right?
2. Prepare the appropriate entries for the declaration and distribution of the stock dividend.