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Accounting for stock split and stock dividend

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.

Solution Preview

(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 ...

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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