Ch 12 - Retained Earnings(2)

To satisfy stockholders dividend expectations without

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Unformatted text preview: rporations Issue Stock Dividends: 1. To satisfy Stockholders’ Dividend Expectations without spending cash. 2. To Increase the Marketability of the corporation’s stock. 3. To Emphasize that a Portion of Stockholders’ Equity has been Permanently Reinvested in the business. Dividends Dividends Effects of Stock Dividends Changes the Composition of stockholders’ equity Total stockholders’ Equity Remains the Same No Effect on the Par or Stated Value Per Share Increases the Number of Shares Outstanding Entries to Record Stock Dividends In accounting for a relatively Small Stock Dividend (say, less than 25%), the Market Value of New Shares is Transferred from Retained Earning to Paid-In Capital. This process is sometimes called “Capitalizing” Retained Earnings. Entries to Record Stock Dividends • On June 1, Aspen has outstanding 1,000,000 Shares of $1 Par Value common stock with a Market Value of $25 per share • Aspen declares a 5% Stock Dividend on this date • The dividend is Distributable on July 15 to stockholders of record on June 20 Entries to Record Stock Dividends Common shares outstainding S tock dividend percent Additional shares issuable Market value per share Amount assigned to dividend Additional shares issuable Par value per share Change in common stock account 1,000,000 5% 50,000 $ 25 $ 1,250,000 $ 50,000 1 50,000 Dividend Dates Date of Declaration • • Date Board of Directors declares the dividend. Do NOT record a liability. Description Jun. 1 Retained Earnings Stock Dividend to be Distributed Additional Paid-in Capital: Stock Dividend Debit Credit 1,250,000 50,000 Shares × $1 Par Value 50,000 50,000 1,200,000 Dividend Dates Date of Payment Date Record the payment of the dividend to stockholders Date Description Jul. 15 Stock Dividend to be Distributed Common Stock Debit Credit 50,000 50,000 Stock Split Reduces Market Value of shares (same value spread over more shares) Issuance of additional shares is accompanied by: A reduction in the par or stated value An increase in number of shares Does not have any effect on Total Paid-In Capital, Retained Earnings, & Total Stockholders' Equity It is NOT necessary to journaliz a stock split Dividends Dividends Assuming that instead o...
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