Question

. Caswell-Cassey Pharmaceutical has a stockholders’ equity account as shown below. The firm’s common stock currently sells for $20 per share.

Preferred stock	$500,000
Common stock (2,000,000 shares @ $1 par)	2,000,000
Paid-in-capital in excess of par	10,000,000
Retained earnings	11,600,000
Total stockholders’ equity	$24,100,000

1. What is the maximum dividend per share Caswell-Casey can pay? (Assume capital   includes all paid-in capital)
2. Recast the partial balance sheet (the stockholders’ equity accounts) to show independently

(i)         2 for 1 stock split of the common stock.

(ii)        cash dividend of $1.50 per share.

(iii)       stock dividend of 5 percent on the common stock.

please show all the steps

Answer 1

	a	Maximum amount of dividend=Retained Earnings
	A	Maximum amount of dividend	$11,600,000
	B	Number of shares	2,000,000
	C=A/B	Maximum dividend per share	$5.80
	b(i)	Stock Split (2 for 1)
		Number of shares after stock split	4,000,000	(2000000*2)
		Preferred stock	$500,000
		Common stock (4,000,000 shares @ $0.5 par)	$2,000,000
		Paid-in-capital in excess of par	$10,000,000
		Retained earnings	$11,600,000
		Total stockholders’ equity	$24,100,000
	(ii)	Cash Dividend of $1.50 per share
		Total Cash Dividend	$3,000,000	(2000000*1.5)
		Journal Entry:
		ACCOUNT TITLE	DEBIT	CREDIT
		Retained Earnings	$3,000,000
		Cash		$3,000,000
		Preferred stock	$500,000
		Common stock (2,000,000 shares @ $1.00 par)	$2,000,000
		Paid-in-capital in excess of par	$10,000,000
		Retained earnings	$8,600,000
		Total stockholders’ equity	$21,100,000
	iii)	Stock Devidend of 5% on common stock
		This is small stock dividend (less than 20%)
		Number of common shares given as dividend=2000000*5%=		100,000
		Market value per share	$20
		Total notional amount of dividend	$2,000,000	(20*100000)
		Journal Entry:
		ACCOUNT TITLE	DEBIT	CREDIT
		Retained Earnings	$2,000,000
		Common Stock (100000shares@$1 per share)		$100,000
		Paid in Capital -in excess of par		$1,900,000
		Preferred stock	$500,000
		Common stock (2,000,000 shares @ $1 par)	$2,100,000	(2000000+100000)
		Paid-in-capital in excess of par	$11,900,000	(10000000+1900000)
		Retained earnings	$9,600,000	(11600000-2000000)
		Total stockholders’ equity	$24,100,000