Problem: On January 1, 2008, Fredriksen Inc.'s Stockholders' Equity category appeared as follows:
prefered stock, $80 par value, 7%
3,000 shares issued and outstanding $ 240,000
Common Stock, $10 par value
15,000 shares issued and outstanding 150,000
additional paid-in-capital-preferred 60,000
additonal paid-in-capital-common 225,000
Total contributed capital 675,000
Retained Earnings 2,100,000
Total stockholders equity 2,775,000
The Preferred stock is noncumulative and nonparticipating. During 2008, the following transactions occurred:
a. On March 1, declared cash dividend of $16,800 on preferred stock. Paid the dividend on April 1.
b. On June 1, declared 55 stock dividend on common stock. The current market price of the common stock was $18. The stock was issued on July 1.
c. On September 1, declared a cash dividend of $0.50 per share on the common stock: paid the dividend on October 1.
d. On December 1, issued a 2-for-1 stock split of common stock when the stock was selling for $50 per share.
Required to do:
1. Explain each transaction's effect on the Stockholders equity accounts and the total stockholders equity
2. Develop the Stockholder's equity category of the December 31, 2008, balance sheet. Assume that the net income for the year was $650,000.
3. Write a paragraph that explain the difference between a stock dividend and a stock split.