Question

A Stock split is different from a stock dividend in that:

1. A stock split is less than 20-25% of the outstanding shares of a company while a stock dividend is greater than 20-25%.
2. A stock dividend is less than 20-25% of the outstanding shares of a company while a stock split is greater than 20-25%.
3. Neither a or b is true.
4. Both a and b are true.

Answer 1

Correct answer---(C) Neither a or b is true.

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A stock split is not a distribution of dividend , it does not even change total common stock balance, while on the other hand a stock dividend increases the balance of common stock and decrease retained earnings by same amount.

In both cases overall shareholder’s equity remains same. In Stock split common stock balance remain same but number of shares increase. In stock dividend too number of shares increase and at the same time value of common stock also increase.

Options A and B are both incorrect as stock split or dividend does not need to be 20-25% of outstanding shares.