What is the accounting for a small stock dividend?
Monday, January 10, 2011 at 11:15AM A stock dividend is the issuance by a corporation of its common stock to its common shareholders without any consideration. If a corporation issues less than 25 percent of the total amount of the number of previously outstanding shares, then this is considered a small stock dividend. If the issuance is for a greater proportion of the previously outstanding shares, then treat the transaction as a stock split.
When there is a stock dividend, you should transfer from retained earnings to the capital stock and additional paid-in capital accounts an amount equal to the fair value of the additional shares issued. The fair value of the additional shares issued is based on their market value after the dividend is declared.
A stock dividend is never treated as a liability, since it does not reduce assets.
Small Stock Dividend Example
Frederick Engineering declares a stock dividend to its shareholders of 10,000 shares. The fair value of the stock is $5.00, and its par value is $1.00. Frederick records the following entry:
| Debit | Credit | |
| Retained earnings | 50,000 | |
| Common stock, $1 par value | 10,000 | |
| Additional paid-in capital | 40,000 |
Related Topics
Types of dividends
What is an interim dividend?
What is a final dividend?
What is the ex-dividend date?
Why use a stock dividend?
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