Stock Splits / Stock Dividends

Question 1

Stock dividends

Answer 1

Distribution to shareholders in proportion to existing holdings. I own 100 shares. After a 10% stock dividend i would own 110 shares. Because the new amount is based on how much I own, everyone will still have the same ownership percentage. Number of outstanding shares increase which causes EPS to decrease.

Question 2

Small Stock dividend

Answer 2

Less than 20-25% of outstanding stock. Capitalized at fair value on declaration date because it is such a small amount that it is unlikely to affect the market price.

Question 3

Large stock dividend

Answer 3

20-25% or more than the outstanding stock at the date the dividend is declared. Capitalized at par value. This adds a lot of shares to the market so it may change the market value of the stock.

Question 4

When multiplying the amount of dividend

Answer 4

be sure to times it by the shares outstanding (Stock - treasure stock) to get the correct dividend amount.

Question 5

Stock splits

Answer 5

Increases the number of shares outstanding and decreases the par value. This reduces the market price to be more accessible by target investors. No accounting entry needed.

Question 6

Stock split effected in the form of a dividend

Answer 6

100% stock dividend would be the same affect as a 2 for 1 stock split. In this case the entry would be debit to APIC - common stock rather than retained earnings as in a straight stock dividend.