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Stock Dividends quiz #1

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  • What is a stock dividend and how does it differ from a cash dividend?
    A stock dividend is when a company issues additional shares to shareholders instead of paying cash. Unlike cash dividends, which reduce assets, stock dividends redistribute equity by transferring amounts from retained earnings to common stock and additional paid-in capital (APIC), without affecting total equity.
  • How is the number of shares issued in a stock dividend calculated?
    The number of shares issued in a stock dividend is calculated by multiplying the percentage of the stock dividend by the total number of outstanding shares. For example, a 10% stock dividend on 150,000 shares results in 15,000 new shares (0.10 x 150,000).
  • How do you determine the total dollar value of a stock dividend?
    The total dollar value of a stock dividend is determined by multiplying the number of additional shares issued by the current market price per share. For example, 15,000 shares at \$25 per share equals a \$375,000 stock dividend.
  • What journal entry is made to record a small stock dividend?
    To record a small stock dividend, debit retained earnings for the total market value of the dividend, credit common stock for the par value of the new shares, and credit APIC for the remainder. For example, debit retained earnings \$375,000, credit common stock \$7,500, and credit APIC \$367,500.
  • Which equity accounts are affected by a stock dividend and how?
    A stock dividend decreases retained earnings and increases common stock and APIC. The total decrease in retained earnings equals the total increase in common stock and APIC, so overall equity remains unchanged.
  • What is considered a small stock dividend, and why is the distinction important?
    A small stock dividend is typically less than 20-25% of outstanding shares. The distinction is important because small stock dividends are accounted for at market value, while large stock dividends (over 20-25%) are accounted for at par value.
  • What is a stock dividend and how does it differ from a cash dividend?
    A stock dividend issues additional shares to shareholders instead of cash, redistributing equity from retained earnings to common stock and APIC. Unlike cash dividends, stock dividends do not reduce total equity but reallocate it among equity accounts.
  • How do you calculate the number of shares issued in a stock dividend?
    Multiply the stock dividend percentage by the total number of outstanding shares. For example, a 10% stock dividend on 150,000 shares results in 15,000 new shares.
  • How is the total dollar value of a stock dividend determined?
    Multiply the number of additional shares issued by the current market price per share. For example, 15,000 shares at \$25 per share equals a \$375,000 stock dividend.
  • What journal entry is made to record a small stock dividend?
    Debit retained earnings for the total market value of the dividend, credit common stock for the par value of the new shares, and credit APIC for the remainder. For example, debit retained earnings \$375,000, credit common stock \$7,500, and credit APIC \$367,500.