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OX BS welcome, Preston xp Login x | Cengagex is CengageNOWIO on X o Classroom FIN 250 x 0 ausignments x C Welcome, Preston- x + – a to ovg.cengagenow.com/irn/takeAssignment /takeAssignmentMain.do?takeAssignmentSessionLocator-assig a Bosca led-course /E-XTFG36HD4J9J/ Kle + n DTE WI Blueprint Problems Dividend – Stock Introduction to Stock dividends Generally, when a company makes a dividend distribution, it indicates the company is doing well anough to distribute some of the profits to shareholders when a publicly traded company chooses to issue a dividend to its shareholders, it does so in one of two ways with a cash dividend or a stock dividend. while a cash dividend is marked by a distribution of monetary profits to shareholders, a stock dividend is a proportional distribution of additional shares to shareholders. Distributing additional shares to shareholders results in changes to the select section of the Select Cash Dividend or stock dividend? indicate whether each item listed in the following table results from a cash dividend or a stock dividend . 1. Current assets are reduEed. 2. No taxable distributions are made. 3. The number of shares outstanding increases. 4. Cash is given to shareholders. 5. The marcet price of an individual share is driven 6. shareholders have to pay taxes on the dividends. Select The board of directors for a company has arrived at the following conclusions: 1. The market price for shares of its stock is becoming prohibitively high. 2. The board wishes to reduce the stock price The CEO insists that the tax burden on current shareholders be minimized. Given this information, what is the best course of action for the company to take? APPLY THE CONCEPTS: Journalize a stock dividend when a stock dividend of 20%-25% or less is declared, it is considered a small stock dividend. It is recorded at the market value of the stock on the date of declaration. Assume that a company announced on September 1, 2011, that it would issue a 10% stock dividend on September 30. On September 1, a single share of the company’s stock was selling on the market for s32. Use this information and the partial balance sheet given here to complete the steps needed to journalize the stock dividend Partial Balance Sheet September 1, 2011 Stockholders’ Equity: Common stock, S10 par value, 12,500 shares $50,000 authorized and 5,000 shares issued and outstanding HO Type here to search a 10 0 LO 217 AM 9/14/2017 $
Expert Answer
- Current assets are reduced:
When cash dividend is issued, cash is paid to the shareholders in the form of dividend.
Hence current asset (cash ) is reduced.
| Current assets are reduced | Cash dividend |
- No taxable distribution are made
When companies issue stock dividend, no cash is paid. Hence , there is no taxable distribution.
| No taxable distribution are made | Stock dividend |
- Number of shares outstanding increases:
When stock dividend is issued, the stock holders are allotted additional shares in the form of dividend.
Hence number of shares outstanding is increased.
| Number of shares outstanding increases | Stock dividend |
- Cash is given to shareholders:
As the name implies, cash dividend means cash is paid to the shareholders.
| Cash is given to shareholders | Cash dividend |
- The market price of an individual share is driven down:
When stock dividend is issued, additional shares are allotted to the shareholders. There is no change in the total liabilities and total assets of the company. Shareholders equity is also not affected. Since number of shares outstanding increases, the market value of share is driven down.
| The market price of an individual share is driven down | Stock dividend |
- Shareholders have to pay taxes on the dividend:
The amount of cash dividends received by individuals is subjected to income tax.
Whereas, there is no tax on the receipt of stock dividend.
| Shareholders have to pay taxes on the dividend | Cash dividend |
Given the situation that:
- Market price of shares are becoming prohibitively high
- The Borad wishes to reduce the stock price
- The CEO insists that the tax burden on current shareholders be minimized
Best course of action for the company to take:
Stock dividend.
| Best course of action for the company to take | Stock dividend |
