Stock Dividends and Stock Splits Flashcards
T/F: After a stock dividend, owners will hold the same percentage of the corporation?
True
What is the effect on OE for a stock dividend or stock split?
No effect
When you declare a stock dividend or stock split, what is the impact on retained earnings?
Dividend: Decrease in RE
Split: None
Effect on Par?
Dividend: none
Split: Cut in half
Effect on shares outstanding?
Double for both
Effect on APIC?
Increase for dividend
No effect for split
Effect on the common stock account?
Increase for dividend
No effect for split
What is the effect of a stock dividend on EPS?
Decrease because the outstanding shares (denominator) is going to increase
What is the difference between a small stock dividend versus large stock dividend?
Small are <20-25% of outstanding (capitalized at fair value on declaration)
Large > 20-25% of outstanding shares (Capitalized at par value)
Example of Small Stock Dividend: 100,000 shares at $3 par, 10,000 treasury stock are held. A 10% stock is dividend. Market price of the stock was $9.
1) Always based on shares outstanding
2) 90000 * .10 = 9000 shares
Journal Entry:
Retained Earnings 81,000
Common Stock (27,000)
APIC- Common Stock (54,000)
Example of a large stock dividend: 100,000 shares at $3, 10,000 treasury. A 50% stock dividend is distributed. market price is $9
Retained Earnings 135,000 Common Stock (135,000)
T/F: If it is a PURE stock split, there are no entries required in the book?
True! :)
Stock split in the form of dividend example: Assume 100,000 shares of $3 par common are issued and 10,000 in shares are held. A 50% stock split effected in the form of a stock dividend is distriubted; market price of stock was $9.
At Declaration:
DR: APIC- Common Stock 135,000
CR: Common Stock (135,000)
