The following selected financial information was extracted from the December 31, 2012 financial records of X company:
Cash 25000
Short-term investments (2,500 shares of Y corporation) 80,000
Common stock ($10 par value, 100,000 shares authorized, 50,000 issued) 500,000
Additional paid-in capital (C/S) 100,000
Retained Earnings (before closing) 245,000
Net income for 2012 43,000
The company's board of directors is currently contemplating declaring a dividend. The company's common stock is presently selling for $40/share.
a. given the present financial position of X company, how large a cash dividend can the board declare?
b. how large a stock dividend can the board legally declare?
c. assume that the dividends are declared and issued on the same day. Prepare the journal entry to record the maximum dividend in each case above.