What is a stock dividend? Describe and discuss reasons why a company would choose to give dividends in the form of stock rather than cash. In your response explain how issuance of a stock dividend affects the accounting records.
Stock Dividends: The dividend paid in form of allotment of additional shares to existing shareholders instead of paying cash dividends are called stock dividends. The stock dividends are paid by the company due to any of the following reasons.
Affect of issuance of stock dividend on the accounting records:
The issue of stock dividend requires the following journal entry
Dr >> Retained Earnings (no. of share issued * market
price of the share) XXXX
Cr >> Common Stock A/c (to the extent of par value) XXXX
Cr >> Paid-in Capital in excess of par value (over and above par value) XXXX
Therefore the issuance of stock dividend will convert the free reserves into capital and capital reserve.
Get Answers For Free
Most questions answered within 1 hours.