Q15RQ - Horngren'S Financial And Managerial Accounting

Question

What is a stock dividend?

Step-by-Step Solution

Answer

A stock dividend is an appropriation of a corporation's own stock to its stockholders.

Step 1: Introduction to the topic

A dividend is a payment to stockholders of the corporation’s profit or surplus for an accounting period.

Step 2:

A stock dividend allocates shares to existing stockholders rather than a cash dividend. When a firm wants to reward its stockholders, it may pay this form of a dividend.

For instance, if a company were to issue a 10% stock dividend, it would expand the number of shares held by shareholders by 10% (one share for every 40 owned). If there are two million shares in a company, this will convert into an additional 100,000 shares.