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Lecture 33

COMMERCE 1AA3 Lecture 33: Class 33


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Lecture
33

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Financial Accounting - COMMERCE 1AA: Class 33
Stock Dividend
-Fair market value is assigned to the stock dividend shares
-A stock dividend has no effect on the financial statements. It makes equity (common shares)
go up, and it makes retained earnings go down (in the form of dividends).
Benefits of stock dividends
-There is more stock in the public so the price drops. If the price drops then more people can
afford it, and then more people buy it so the stock price goes back up/
-It is a conversion of retained earnings into shares. You’re locking retained earnings up, and
you never have to distribute it as cash dividend.
Stock dividend does not effect ownership interest. If you owned 20% of a company before the
stock dividend, you will still own 20% of the company after the stock dividend is distributed.
In a 10% stock dividend, if the company originally had 10000 common shares, then 1000 stocks
would be given away as stock dividend.
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Stock Dividend Dates
1. Declaration date
Dr. Stock dividend
Cr. Stock Dividends Distributable
2. Date of record
-No entry-
3. Payment Date
Dr. Stock Dividend
Cr. Common Shares
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Stock Dividends Distributable is an adjunct equity account
-An adjunct account must exist with a β€œparent account”. Contra works against its partnered
account, but adjunct works on the same side.
Both the declaration date and the payment date will not have any effect on the financial
statements.
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