Analyze and record stock dividend transactions.
As of December 31, 2007, Chips Company had 100,000 shares of $10 par value common stock issued and outstanding. The retained earnings balance was $125,000. On January 15, 2008, Chips Company issued a 5% stock dividend to its common shareholders. At the time of the dividend, the market value of the stock was $15 per share.
Required
a. Show how the stock dividend would affect the accounting equation.
b. How many shares of stock are outstanding after the stock dividend?
c. If you owned 3% of the outstanding common stock of Chips Company before the stock dividend, what is your percentage ownership after the stock dividend?