1. eBook

   Dividends and Stock Splits

   On January 1, 2017, Svenberg Inc.'s Stockholders' Equity category appeared as follows:

   Preferred stock, $80 par value, 8%, 1,000 shares issued and outstanding	$80,000
   Common stock, $10 par value, 10,000 shares issued and outstanding	100,000
   Additional paid-in capitalPreferred	60,000
   Additional paid-in capitalCommon	225,000
   Total contributed capital	$465,000
   Retained earnings	1,980,000
   Total stockholders equity	$2,445,000

   The preferred stock is noncumulative and nonparticipating. During 2017, the following transactions occurred:

   1. On March 1, declared a cash dividend of $6,400 on preferred stock. Paid the dividend on April 1.
   2. On June 1, declared an 8% stock dividend on common stock. The current market price of the common stock was $26. The stock was issued on July 1.
   3. On September 1, declared a cash dividend of $0.70 per share on the common stock; paid the dividend on October 1.
   4. On December 1, issued a 3-for-1 stock split of common stock, when the stock was selling for $30 per share.

   Required:

   1. Explain each transactions effect on the stockholders equity accounts and the total stockholders equity.

   Transaction	Effect on total stockholders' equity
   On March 1, declared a cash dividend of $6,400 on preferred stock	DecreaseIncreaseUnchanged
   Paid the dividend on April 1	DecreaseIncreaseUnchanged
   On June 1, declared an 8% stock dividend on common stock. The current market price of the common stock was $26	DecreaseIncreaseUnchanged
   The stock was issued on July 1	DecreaseIncreaseUnchanged
   On September 1, declared a cash dividend of $0.70 per share on the common stock	DecreaseIncreaseUnchanged
   Paid the dividend on October 1	DecreaseIncreaseUnchanged
   On December 1, issued a 3-for-1 stock split of common stock, when the stock was selling for $30 per share	DecreaseIncreaseUnchanged

   2. Develop the Stockholders' Equity category of the balance sheet. Assume that the net income for the year was $720,000. Do not round interim par value calculations.

   Svenberg Inc. Partial Balance Sheet December 31, 2017

   Stockholders' equity
   Account receivableAccounts payableCashPreferred stock, $80 par, 8%, 1,000 shares issued and outstandingTreasury stock	$- Select -
   Accounts payableCashCommon stock, $3.33 par, 32,400 shares issued and outstandingStock dividends payableTreasury stock	- Select -
   Additional paid-in capital-preferred stockAccounts payableCashStock dividends payableTreasury stock	- Select -
   Additional paid-in capital-common stockAccount receivableAccounts payableCashTreasury stock	- Select -
   Total contributed capital	$fill in the blank fc881d062073035_9
   Account receivableAccounts payableCashStock dividends payableRetained earnings	- Select -
   Total stockholders' equity	$fill in the blank fc881d062073035_12

   3. Which of the following statements is incorrect?

   A large stock dividend results in the capitalization of part of the Retained Earnings account.There is no change to any of the capital accounts in a stock split.There is an increase in the number of outstanding shares in a stock split, which is offset by a corresponding decrease in the par value of those shares.The value of the shares issued in the large stock dividend is added to the Retained Earnings account and deducted from the Capital Stock account.