QUESTION 3 Explain the difference between a large stock dividend and a small stock dividend. In...

QUESTION 3

Explain the difference between a large stock dividend and a small stock dividend. In addition, explain how to record these two types of stock dividends.

Expert Solution

Solution: When company distributes its retained earnings then it's called issuance of stock dividend. And if the distributed part of retained earnings is less than 20-25% , then it's called small stock dividend but if it's more than 20-25% , it's called large stock dividend.

For recording these two types of stock dividend;

At the time of declaration, retained earnings is debited by the amount equal to the product of the share's market price, the stock dividend percentage and the current number of shares outstanding; and stock dividends distributable is credited by the same amount.
At the time of issuance of stock the stock dividends distributable is debited by the full amount, common stock is credited by amount equal to the product of par value per share, stock dividend percentage and the number of current shares outstanding. Any excess of stock dividends distributable over the amount credited to common stock is credit to additional paid-in capital.

ekkarill92 answered 2 years ago

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