Question

A corporation is authorized to sell 1,000,000 shares of common stock. Today there are 500,000 shares outstanding, and the board of directors declares a 7% stock dividend. How many shares will be issued as a stock dividend?

Answer 1

35,000 stocks

Step-by-step explanation:

Dividends can be either distributed in cash or distributed as new stock. In this case the company decided to issue stock instead of cash payments. Since the company has 500,000 outstanding and the board declared a 7% dividend, then 35,000 stocks should be issued (= 500,000 x 7%).

Whether shareholders receive money or stocks, they still have to include the dividends as part of their gross income.