So, even though an investor who owns 100 shares in a company may receive 5 additional shares, the total market value of those shares remains the same.
In this way a stock dividend is very similar to a stock split.
Common Stock, par = 300,000 Following the issuance the stockholder’s equity is as follows: Common Stock, [ par x 45,000] = $ 900,000 Additional Paid-in-Capital = 300,000 Total Stockholder’s Equity = 1,500,000 Note that the large stock dividend is treated as a stock split, that is, a split-up effected in the form of a dividend.
Companies will pay liquidating dividends under the following circumstances: Distributions can only be made to shareholders after the money owed to creditors has been paid.With the exception of stock dividends, all the other dividends reduce the stockholder’s equity in the corporation. Cash = 3,075,000 Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. Retained Earnings 50% [30,000 share x ] = 300,000 [Credit]. Retained Earnings [Cash Dividend Declared] = 2,000,000 [Credit]. Date of record, April 15, 2009 Memorandum entry that the firm will pay a dividend to all stockholders of record as of today, the date of record. Retained Earnings [Property Dividend Declared] = 0,00 [Credit]. The accounting treatment at the date of declaration consists of debiting retained earnings or scrip dividends declared and crediting notes payable to stockholders or scrip dividend payable. Retained Earnings [Scrip Dividends Declared] = 3,000,000 [Credit]. The transaction is made by a capitalization of retained earnings resulting in a reduction of retained earnings and an increase in some contributed capital accounts. Additional Paid-in-Capital from Stock Dividend 30,000 2. Common Stock Dividend Distribution = 120,000 [Credit].The board of a public company, for example, can approve a 5% stock dividend, which gives existing investors an additional share of company stock for every 20 shares they already own.However, this means that the pool of available equities increases by 5%, diluting the value of existing shares.