No change in total assets liabilities or shareholders

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capital. No change in total assets, liabilities, or shareholders’ equity. To illustrate: I have 2% ownership interest. I own 1000 of its 50,000 shares. If corporation declares 10% stock dividend, it issues 5000 shares (50,000 x 10%). I would receive 100 shares (2% x 5000 or 10% x 1000) So ownership interest remains at 2% From the company’s point of view, no cash has been paid and no liabilities have been assumed. A corporation issues stock dividends because: 1. To satisfy shareholders’ dividend expectations without spending cash 2. To increase marketability of the corporation’s shares. When the number of shares increase, market price per share decreases. Decreasing the market price makes it easier for investors to purchase shares
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3. To emphasize that a portion of shareholders’ equity has been permanently retained in the business and is unavailable for cash dividends The size of the stock dividend and the value to be assigned to each share are determined by the BOD when dividend is declared. The Canada Business Corporations Act recommends that directors of federally incorporated companies assign the fair market value per share for stock dividends.This directive is based on the assumption that a stock dividend will have little effect on market price of shares previously issued. While the stock dividend value can be decided by the directors in some provincial jurisdictions, it is widespread practice to use fair market values. Entries for Stock Dividends ABC Corporation has a balance of $300,000 in retained earnings. On June 30, 2003, it declares a 10% stock dividend on its 50,000 no par value common shares and fair market values of its shares is $15 per share. The number of shares to be issued is 5000 (10%x50,000). The total amount to be debited to the stock dividends account is $75,000 (5000x15). Entry is as follows:
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