P$15-11($Stock and Cash Dividends$)$ Earnhart Corp. has outstanding $3,000,000$ shares of common stock of a par value of $$10$ each. The balance in its Retained Earnings account at January $1,2012,$ was $$24,000,000,$ and it then had Paid$-$In Capital in Excess of Par$-$Common Stock of $$5,000,00.$ During $2012,$ the company$$s net income was $$4,700,000.$ A cash dividend of $$0\mathrm{.}60$ a share was declared on May $5,2012,$ and was paid June $30,2012,$ and a $6\%$ stock dividend was declared on November $30,2012,$ and distributed to stockholders of record at the close of business on December $31,2012.$ You have been asked to advise on the proper accounting treatment of the stock dividend.

The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows.

October $31,2012$ $$31$

November $30,2012$ $$34$

December $31,2012$ $$38$

Instructions

$($a$)$ Prepare the journal entry to record the declaration and payment of the cash dividend.

$($b$)$ Prepare the journal entry to record the declaration and distribution of the stock dividend.

$($c$)$ Prepare the stockholder$$s equity section $($including schedules of retained earnings and additional paid$-$in capital$)$ of the balance sheet of Earnhart Corp. for the year $2012,$ on the basis of the foregoing information. Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriate comments or explanation regarding the basis chosen.