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Unformatted text preview: 7,500 Declared and issued 10% stock dividend. Option 2 Stock Dividend (–SE) 85,000 Common Stock (+SE) 10,000 Additional Paid­In Capital, Common Stock (+SE) 75,000 Declared and issued 20% stock dividend. When a company declares an ordinary stock dividend, the fair market value of the new shares issued is transferred from Retained Earnings, via the Stock Dividend account, to the contributed capital accounts. Since in most states dividends are restricted to the balance in Retained Earnings (or Retained Earnings less Treasury Stock), any decrease in its account balance decreases the amount of potential dividends. So from the stockholders' viewpoint a stock dividend is not attractive because it decreases potential future dividends. The primary reason that a company would declare an ordinary stock dividend is as a publicity gesture. Some companies take great pride in being able to "promote" the company's dividend­paying history. If a company finds itself short of cash and still wants to be able to cl...
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This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.

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