Question

"Stock Dividends"
Please respond to the following:

A company is considering issuing a 10% stock dividend to common stockholders. What are the accounting implications of the stock dividend?

Should the stock dividend be issued to all stockholders of record or to stockholders of record excluding shares held as treasury stock? Why or why not?

Answer 1

Answer

Company declared 10% stock dividend, that means If a person has 100 shares than he will receive 10 shares (100 Shares * 10%) as dividend.

Company has declared 10% dividend, which is small so we will record this dividend at market value of Shares.

Example

Suppose if a company has 10 Shares @ $1 par value. Company declared 10% Stock dividend and company share market value is $5 per share

Stock Dividend = 1 Share (10 Shares * 10%)

Entry:

S No.		Dr. $	Cr. $
1	Retained Earnings ($5 * 1 Share)	5
	Common Stock Dividend Distributable (1 Share * $1)		1
	Paid-in-capital		4
2	Common Stock Dividend Distributable	1
	Common Stock		1

10% Stock Dividend will affect Retained Earnings by the Market value, Common Stock capital by par value of Share and Paid-In-Capital by the excess value( i.e. Excess over par value) of the Stock.

Part 2

If the company has some shares in Treasury Stock then Stock dividend will be issued to the stockholders of record excluding shares held as treasury stock.

Treasury Stock are the stock which is owned by the company i.e. Company purchased its own shares and these stocks are known as Treasury Stock.

And company cannot issue dividend to itself (i.e. Treasury stock is owned by the company).

So this is the reason why Stock dividend is issued to the stockholders of record excluding shares held as treasury stock