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Stock Dividend & Stock Split

The directors of Amman corporation are considering the issuance of a stock dividend. They have ased you to discuss
the proposed action by answering the following questions.

a.) What is a stock dividend? How is a stock dividend distinguished from a stock split
1. From a legal standpoint
2. From an accounting standpoint

b.) For what reasons does a corporation usually declare a stock dividend? A stock split?

c.) Discuss the amount, if any, of retained earnings to be capitalized in connection with a stock dividend.

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Solution Preview

A - Stock dividend is a dividend paid as addtional shares of stock rather than cash payments. Stock split refers to reducing the face value of stock thereby increasing the share is proportion similiar to stock split. The share capital or market capitalization is not changed by stock split. Only no. of shares ...

Solution Summary

The solution distinguish between stock dividend and stock split and brief explain reason by company use both of them.