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Effects of a stock dividend and a stock split

Campbell Company wants to increase the number of shares of its common stock outstanding and is considering a stock dividend versus a stock split. The stockhlders' equity section of the firm's most recent balance sheet appeared as follows:

Common Stock $10 par,
60,000 shares issued and outstanding $ 500,000
Additional paid-in-capital 750,000
Retained Earnings 880,000
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Total stockholders' equity $2,130,000

If a stock dividend is chosen, the firm wants to declare a 100% stock dividend. Because the stock dividend qualifies as a large stock dividend, it must recorded at par value. If a stock split is chosen, Campbell will declare a 2-for-1 split.

Required:

1. Compare the effects of a stock dividend and a stock split on the accounting equation.

2. Develop the stockholders' equity category of Campbell's balance sheet (a) after the stock dividend and (b) after the stock split.

Solution Preview

1) Impact of stock dividend

The journal entry will be:
Retained earnings 500000
Common Stock 500000
http://www.principlesofaccounting.com/chapter%2014.htm#stock%20dividends

2) There will be no impact on value of common stock ...

Solution Summary

Response explains the effects of a stock dividend and a stock split

$2.19