Subsidiary stock dividend. On January 1, 2015, Talbot Company acquires 90% of the outstanding stock of Lego Company for $810,000. At the time of the acquisition, Lego Company has the following...

Subsidiary stock dividend. On January 1, 2015, Talbot Company acquires 90% of the outstanding stock of Lego Company for $810,000. At the time of the acquisition, Lego Company has the following stockholders’ equity:

It is determined that Lego Company’s book values approximate fair values as of the purchase date. Any excess of cost over book value is attributed to goodwill. On July 1, 2015, Lego Company distributes a 10% stock dividend when the fair value of its common stock is $40 per share. A cash dividend of $0.50 per share is distributed on December 31, 2015. Lego Company’s net income for 2015 amounts to $108,000 and is earned evenly throughout the year.

1. Prepare the entry required on Lego Company’s books to reflect the stock dividend distributed on July 1, 2015. Prepare the stockholders’ equity section of the Lego Company balance sheet as of December 31, 2015.