Share purchase/cash dividend/stock dividend
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What are the major advantages of a share repurchase over a cash dividend?
A. (Accounting for a stock dividend) Epson, Inc., has the common stock accounts shown here. The stock has a $38 per share market value. If Epson pays a 10% stock dividend, show the revised common stock accounts.
Paid-in capital ($0.50 par value, 10,000,000 shares) $ 5,000,000
Capital contributed in excess of par value 13,000,000
Retained earnings 60,000,000
Common stockholders' equity $78,000,000
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Solution Summary
The solution explains the the major advantages of a share repurchase over a cash dividend and the impact on balance sheet of a stock dividend.
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The major advantages are:
1. There is a favorable tax treatment. Share repurchases would result in capital gains which are taxed at a lower rate as compared to cash dividends which are taxed as ordinary income.
2. The shareholders can decide whether to ...
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