Casablanca Paper has the following stockholders' equity account. The firm's common stock has a current market price of US$30 per share.
Preferred stock.........................................US$100,000
Common stock (10,000 shares at US$2 par).............20,000
Paid in capital in excess of par...........................280,000
Retained earnings..........................................100,000
Total stockholders' equity...........................US$500,000
a. Show the effects on Casablanca of a 5 percent stock dividend.
b. Show the effects of (1) a 10 percent and (2) a 20 percent stock dividend.
c. In light of your answers to parts a and b, discuss the effects of stock dividends on stockholders' equity.