COMMERCE 1AA3 Lecture 33: Class 33
10 Mar 2017
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Fair market value is assigned to the stock dividend shares. A stock dividend has no effect on the nancial statements. It makes equity (common shares) go up, and it makes retained earnings go down (in the form of 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. 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. Stock dividends distributable is an adjunct equity account.
