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Hello Folks,

Do any of you know the difference in accounting treatment for Stock Dividends and Stock Splits? The members of my investment club say there is no difference, but as I recall from business school, there is a difference. Also, I think the difference can be divided two ways: for small stock dividends and for large stock dividends.


Any help would be appreciated.

Sincerely,

sulpolitix
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It's been awhile since I looked at this but there is a difference. A stock split simply increases the number of shares by a pre-determined ratio. There should not be an impact on par value or paid-in-capital. Here the company simply increases the number of shares outstanding.

If there is a stock dividend, each shareholder receives additional shares as the firm issues new shares in lieu of paying a cash dividend. If 10%, shareholders would get 10 shares for each 100 shares of stock owned.

A company may choose to pay a stock dividend, which is a dividend paid in shares or fractions of shares, instead of cash. A stock dividend merely lowers the cost per share of your holdings; it does not change the total value of your holdings. For example, if you owned 100 shares of stock worth $1,000, each share would be worth $10. If a 25% stock dividend were paid, you would then own 125 shares whose total value would still be $1,000. However, each share would then be worth $8.

A stock dividend is usually nontaxable at the time paid unless the company offers the stockholder the option of receiving the dividend in the form of either stock or cash.

Phil
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TMF Grape,

Thanks for your enlightening reply on stock dividends vs stock splits. I have found some material which may add to what you wrote. I'll go to the libray tomorrow, review it, and get back to you.

By the way, I take it from your post that neither a stock dividend nor a stock split require accounting changes to the Shareholders Equity accounts.

Keep on going,

Sulpolitix
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The only change there may be to the stockholders' equity account from a stock split or dividend would be shuffling between the common stock and additional paid in capital (APIC) accounts. If the split causes a change in par value, then the excess will be "moved" to APIC.

Let me know if you have more questions.

Phil
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