Accounting for stock split and stock dividend
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13. (Stock Split and Stock Dividend) The common stock of Alexander Hamilton Inc. is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Nine million shares are issued and outstanding.
Instructions:
Prepare the necessary journal entries assuming the following.
a. The board votes a 2-for-1 stock split.
b. The board votes a 100% stock dividend.
c. Briefly discuss the accounting and securities market differences between these two methods of increasing the number of shares outstanding.
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Solution Summary
This post explains what journal entries are to be made and how stock split is different from stock dividend for the companies with regard to their accounting treatment.
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(a) No entry is required for stock split. Only a memorandum is required indicating that the number of shares has increased from 9 million to 18 million and the face value of stock has decreased from $10 to $5 per share.
(b) The stockholders will be provided ...
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