FAR CPAexcel: Stock Dividends and Splits

Basic Accounting

Change number of shares outstanding; no affect on OE Decreases EPS Capitalize RE to Contributed capital

Clearly summarized differences

Effect on total OE *100% SD - none *2-for-1 split - none Effect on RE *100% SD - decrease *2-for-1 split - none Effect on par value *100% SD - none *2-for-1 split - cut in half Effect on shares outstanding *100% SD - double *2-for-1 split - double Effect on contributed capital *100% SD - increase *2-for-1 split - none Effect on common stock account *100% SD - increase *2-for-1 split - none

Small stock dividend *100,000 shares of $3 par common are issued, and 10,000 in the treasury. A 10% stock dividend is distributed. Market price of the stock was $9.

<25% of outstanding shares; capitalized at market value on declaration date Retained earnings 81,000 (.1X90,000)($9) Common stock 27,000 (.1X90,000)($3) PIC-Common 54,000

Reasons for Stock Dividend

Increased marketability Aiming for a certain stock price

Difference between stock splits and stock dividends *same but with 50% stock split effected in the form of a stock dividend is distributed

Par value is adjusted in a stock split A 100% stock dividend and a 2-for-1 stock split double outstanding shares, but the split cuts the par value in half as well No journal entry required for stock splits Common stock nor RE are affected If "stock split effected in the form of a stock dividend," PIC-common is debited rather than RE PIC-Common 135,000 Common stock 135,000

Large stock dividend *100,000 shares of $3 par common are issued, and 10,000 in the treasury. A 50% stock dividend is distributed. Market price of the stock was $9.

Retained earnings 135,000 (.5X90,000)($3) Common stock 135,000