2252

Question 1

2252.47

Answer 1

Stock Dividends and Splits

Stock dividends do not constitute income to the investor. A stock dividend takes nothing from the property of the corporation and adds nothing to the interests of the stockholders; that is, the corporation’s property is not diminished and the interests of the stockholders are not increased. The proportional interest of each shareholder remains the same. However, the carrying amount per share is affected by the stock dividend, as demonstrated in the following example.

Example: Before receipt of a 10% stock dividend (one additional share for each 10 shares owned), Investor Company owns 100 shares of common stock of Investee Company. The balance in the Investee Company account is $6,600.

                    Before 10% Stock      After 10% Stock
                                 Dividend              Dividend    Balance in investment account   $6,600      $6,600 Divided by numbers of shares owned  ÷  100 ÷ 110 Carrying amount per share             $   66      $   60
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