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Unformatted text preview: 7,500
Declared and issued 10% stock dividend.
Stock Dividend (–SE) 85,000
Common Stock (+SE) 10,000
Additional PaidIn Capital, Common Stock (+SE)
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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