Question

A firm issued a small stock dividend when the market price of the stock was greater than its par value. which of the following are true?

a. A debit to retained earnings for the par value of the shares issued should be made.

b. A small stock dividend decreases total stockholders' equity.

c. Market value per share should be assigned to the dividend shares.

d. A small stock dividend ordinarily will have no effect on book value per share of stock.

Answer 1

When a firm issues a small stock dividend when the market price of the stock is greater than its par value, a debit to retained earnings for the par value of the shares issued should be made. A small stock dividend ordinarily will have no effect on book value per share of stock. Market value per share should be assigned to the dividend shares.The correct answer is option a., c. and d.

Step-by-step explanation:

When a firm issues a small stock dividend when the market price of the stock is greater than its par value, several things are true:

1. A debit to retained earnings for the par value of the shares issued should be made: When a stock dividend is issued, the company transfers a portion of its retained earnings to the common stock account. This transfer represents a decrease in retained earnings and an increase in common stock.
2. A small stock dividend ordinarily will have no effect on book value per share of stock: When a small stock dividend is issued, the number of shares outstanding increases, but the company's net assets and equity remain unchanged. Therefore, the book value per share of stock remains the same.
3. Market value per share should be assigned to the dividend shares: The dividend shares given to shareholders are valued at their market price, not their par value.