This preview shows page 1. Sign up to view the full content.
Unformatted text preview: rporations Issue Stock Dividends:
1. To satisfy Stockholders’ Dividend
Expectations without spending cash.
2. To Increase the Marketability of the
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
Total stockholders’ Equity Remains the
No Effect on the Par or Stated Value
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
Common shares outstainding
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
$ 1,250,000 $ 50,000
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
1,200,000 Dividend Dates Date of Payment
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
Assuming that instead o...
View Full Document
This document was uploaded on 03/12/2014 for the course ACCOUNTING 101 at Fullerton College.
- Spring '11
- Financial Accounting