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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
--------
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.

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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