Stock Dividends and Splits

Question 1

What is a stock dividend in terms of retained earnings?

Answer 1

-A permanent capitalization of retained earnings into contributed capital

Question 2

How are stock dividends accounted for?

Answer 2

• Small stock dividends (20-25%)- capitalize at market price on date of dividend
• Large stock dividends (>25%)- capitalize at par value, or treat as stock split effected in form of a stock dividend

Question 3

Are Treasury Shares adjusted for stock dividends?

Answer 3

-Typically not unless used to meet commitment under a stock option plan