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Distribution to Shareholders and Capital Structure Decisions. Contrast the differences between a stock split,. Imagine that...

Distribution to Shareholders and Capital Structure Decisions. Contrast the differences between a stock split,. Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a 2-for-1 split.

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Answer #1

A stock dividend is the payment to shareholders of additional shares of equity rather than cash amount and par value of a share will remain the same. Declaring a 100% stock dividend means one additional stock for every stock held.

While in stock split the par value of a share will reduce. If company declares a 2-for-1 split of stock of par value 10; then after split you will get 2 stocks of par value of 5.

I will prefer a 100% stock dividend over a 2-for-1 split because in case of stock dividend; company actually pays from the profit of the company. There will be a transfer of fund from retained earnings account to common stock account and Paid-in capital in excess of par account and retained earnings will decrease after stock dividend.

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