Stock Splits Explained

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Stock dividends and stock splits both increase the number of shares outstanding. However, there are several differences in the accounting for stock dividends and stock splits. • First, a stock split reduces the par value per share, while a stock dividend has no effect on the par value per share. • Second, a stock split doesn't require a journal entry, as it has no effect on the financial statements. A stock dividend, however, does affect the financial statements (the effect depends on whether it is a small stock dividend or a large stock dividend). • Third, a stock dividend increases the common stock account. If the stock dividend is small (less than 20-25% of the shares outstanding), then the stock dividend also reduces the retained earnings account by the fair market value of the stock multiplied by the number of shares being distributed in the stock dividend. If the stock dividend is large (more than 20-25% of the shares outstanding), then the stock dividend reduces the retained earnings account (or the additional paid-in capital account) by the par value of the stock multiplied by the number of shares being distributed in the stock dividend. • — • Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. • — • SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • • A 44-PAGE GUIDE TO U.S. TAXATION • • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • • MANY MORE FREE PDF GUIDES AND SPREADSHEETS • http://eepurl.com/dIaa5z • — • SUPPORT EDSPIRA ON PATREON • * / prof_mclaughlin • — • GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT • https://edspira.thinkific.com • — • LISTEN TO THE SCHEME PODCAST • Apple Podcasts: https://podcasts.apple.com/us/podcast... • Spotify: https://open.spotify.com/show/4WaNTqV... • Website: https://www.edspira.com/podcast-2/ • — • GET TAX TIPS ON TIKTOK • / prof_mclaughlin • — • ACCESS INDEX OF VIDEOS • https://www.edspira.com/index • — • CONNECT WITH EDSPIRA • Facebook: / edspira • Instagram: / edspiradotcom • LinkedIn: / edspira • — • CONNECT WITH MICHAEL • Twitter: / prof_mclaughlin • LinkedIn: / prof-michael-mclaughlin • — • ABOUT EDSPIRA AND ITS CREATOR • https://www.edspira.com/about/ • https://michaelmclaughlin.com

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