Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 11 - Reporting and Analyzing Stockholders' Equity - Questions: 19

Answer

The difference of stock split and stock dividend is as under: a) In stock dividend the number of shares increases with same par value, whereas in stock split the number of shares increases with lower par value. b) In stock dividend the value shares is reduced from retained earnings, whereas in stock split the value of shares is not reduced from the retained earnings. Hence H Hence the amount of retained earnings remains same after the stock split, whereas it decreases after the stock dividend. c) In stock dividend, total Paid in capital is increased, whereas in stock split the total paid in capital remains unchanged.

Work Step by Step

In stock dividend, the price per share will not change in proportion to the increase in the number of shares, however in case of stock split the price per share will change approximately in proportion to the reduction in par value of share.
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