Dividends and Stock Splits On January 1, 2010, Frederiksen Inc.’s Stockholders’ Equity category appeared as follows:

Preferred 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 Additional 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 2010, the following transactions occurred:

a. On March 1, declared a cash dividend of $16,800 on preferred stock. Paid the dividend on April 1.

b. On June 1, declared a 5% 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 1. Explain each transaction’s effect on the stockholders’ equity accounts and the total stockholders’ equity.

2. Develop the Stockholders’ Equity category of the December 31, 2010, balance sheet. Assume that the net income for the year was $650,000.

3. Write a paragraph that explains the difference between a stock dividend and a stock split.

AppendixLO1