The stockholders' equity section of the Bates Corporation's balance sheet for June 30, 1998, follows:

On July 1, 1998, the corporation's directors declared a \(10 \%\) stock dividend distributable on August 2 to stockholders of record on July 16. On November 1, 1998, the directors voted a \(\$ 2.40\) per share annual cash dividend payable on December 2 to stockholders of record on November 16. For four years prior to 1998 , the corporation had paid an annual cash dividend of \(\$ 2.52\).

As of July 1, 1998, Bob Jones owned 8,000 shares of Bates Corporation's common stock, which he had purchased four years earlier. The market value of his stock was \(\$ 48\) per share on July 1, 1998, and \(\$ 43.64\) per share on July 16, 1998.

a. What amount of cash dividends will Jones receive in 1998? How does this amount differ from the amount of cash dividends Jones received in the previous four years?

b. Jones has asked you, his CPA, to explain why the price of the stock dropped from \(\$ 48\) to \(\$ 43.64\) on July 16, 1998. Write a memo to Jones explaining your answer.

c. Do you think Jones is better off as a result of the stock dividend and the \(\$ 2.40\) cash dividend than he would have been if he had just received the \(\$ 2.52\) cash dividend? Write a memo to Jones explaining your answer.

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Stockholders' equity: Paid-in capital: Common stock-$20 par value; authorized 200,000 shares, issued and outstanding 80,000 shares. Paid-in capital in excess of par value. Total paid-in cap ta Retained earnings lotal stockholders' equity $1,600,000 960,000 $2,560,000 1,520,000 $4,080,000