Dividend Reinvestment Plans Many corporations have automatic dividend reinvestment plans. Individual shareholders may elect not to receive their cash dividends. Instead, an equivalent amount of cash is invested in additional stock (at the current market value) that is issued to the shareholder. The Coca-Cola Company had the following data at December 31, 2002 ($ in millions): Coca-Cola Company Common stock: authorized 5,600,000,000 shares: $.25 par value; issued 3,490,818,627 shares Capital surplus $ 873 3,857 Reinvested earnings 24,506 Accumulated other comprehensive income (3,047) 26,189 Less treasury stock, at cost (1,019,839,490 shares) 14,389 $11,800 1. Coca-Cola declared a quarterly cash dividend of $.20 per share. Suppose holders of 10% of the company's shares decided to reinvest in the company under an automatic dividend reinvestment plan instead of accepting the cash. The market price of the shares on issuance was $40 per share. Prepare the journal entry (or entries) for these transactions. (Note: No dividends are paid on shares held in the treasury.) 2. A letter to the editor of Business Week commented: Stockholders participating in dividend reinvestment programs pay taxes on divi- dends not really received. If a company would refrain from paying dividends only to take them back as reinvestments, it would save paperwork, and the stockholder would save income tax. Do you agree with the writer's remarks? Explain in detail. 1.0-48 Dividends (Alternate is 10-49.) 1. The Minneapolis Company issued 400,000 shares of common stock, $5 par, for $25 cash per share on March 31, 20X1. Prepare the journal entry. 2. Minneapolis Company declared and paid a cash dividend of $1 per share on March 31, 20X2. Prepare the journal entry.

3. Minneapolis Company had retained earnings of $9 million by March 31, 20X5. The market value of the common shares was $50 each. A common stock dividend of 5% was declared; the shares were issued on March 31, 20X5. Prepare the journal entry. Also present a tabulation that com- pares the stockholders' equity section before and after the declaration and issuance of the stock dividend. Also include at the bottom of the tabulation the effects on the overall market value of the stock, the total shares outstanding, and the number of shares and percentage of ownership of an individual owner who originally bought 5,000 shares. 4. What journal entries would be made by the investor who bought 5,000 shares of the Minneapolis common stock and held this investment throughout the time covered in require- ments 1, 2, and 3? 5. Refer to requirement 4. Suppose the investor sold 200 shares for $58 each the day after receiving the stock dividend. Prepare the investor's journal entry for the sale of the shares.