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Your company has been very profitable and expects continued financial success. Its stock price has reached...

Your company has been very profitable and expects continued financial success. Its stock price has reached a point where the company needs to make it more affordable. Would you recommend a stock dividend or a stock split? Why?

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Answer #1

Stock dividends are not actual distributions of assets from the company and therefore not a liability when declared; represents only transfer of capital from retained earnings to contributed capital. Total stockholder's equity remain unchanged.

Under Stock split old stock is exchanged for new stock; accounted for by adjusting par value of the new shares for the split by a memorandum entry and thre is no Journal entry. In a 2 for 1 stock split, par value of 1,000 $10 stock will be replaced by 2,000 $5 stocks.

Therefore, I recommend a stock split.

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