Cash in lieu of fractional share rights
Douglas McDonald Company's balance sheet included the following shareholders' equity accounts at December 31, 2015:
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($ in millions)
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Paid-in capital:
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Common stock, 900 million shares at $1 par
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$ 900
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Paid-in capital--excess of par
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15,800
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Retained earnings
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14,888
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| Total shareholders' equity |
$31,588 |
On March 16, 2016, 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.