Explore BrainMass

Stock Dividend, Stock-Split, Treasury Stock

The CEO of your company has asked you to make a speech at the next board of directors meeting to the directors on stocks and dividends.

Explain the following:

What are the differences between a stock dividend, a stock-split, and treasury stock?
For each event:
explain the effects to stockholders
explain the effects on the financial statements of the corporation
Discuss why it is important to know what the company's net income and not just rely on the stock price.

Solution Preview

Stock dividend

This is where you agree to issue stock to current stockholders in a set percent of the shares they already own (Mitre Media, 2013). For instance, a 5% stock dividend would send 5% more stock to all stockholders, resulting in 105% of the number of current shares outstanding after the new shares are distributed.

Explain the effects to stockholders

Each shareholder will have 5% more shares but the total assets are the same and they own the same perfect of the firm. So, the share price will likely adjust and they will have the same market value as before (Accounting Coach, 2013).

Explain the effects on the financial statements of the corporation

The number of shares issued will be higher and the equity section will be slightly different. An amount would be removed from retained earnings and ...

Solution Summary

Your discussion is 445 words and two references. The discussion is suitable for a novice. One or two sentences explain each aspect.