Chapter 18, Problem 18.21E

Cash in lieu of fractional share rights

• LO18–8

Douglas McDonald Company’s balance sheet included the following shareholders’ equity accounts at December 31, 2017:

	($ in millions)
Paid-in capital:
Common stock, 900 million shares at $1 par	$ 900
Paid-in capital—excess of par	15,800
Retained earnings	14,888
Total shareholders’ equity	$31,588

On March 16, 2018, a 4% common stock dividend was declared and distributed. The market value of the common stock was $21 per share. Fractional share rights represented 2 million equivalent whole shares. Cash was paid in lieu of the fractional share rights.

Required:

1. What is a fractional share right?

2. Prepare the appropriate entries for the declaration and distribution of the stock dividend.