Question

E15.13 (LO 3) (Stock Split and Stock Dividend) The common stock of Alexander Hamilton Inc. is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Nine million shares are issued and outstanding.

Prepare the necessary journal entries assuming the following.
1 The board votes a 2-for-1 stock split.
2 The board votes a 100% stock dividend
3 Briefly discuss the accounting and securities market differences between thesetwo methods of increasing the number of shares outstanding

Answer 1

No journal entry required forthe stock-split as this change the amoung of shares outstanding but not the market capitalization nor the face or total market value of the shares

retained earnings 630,000,000 debit

common stock 90,000,000 credit

addiional paid-in 540,000,000 credit

--to record stock dividends--

Difference:

WHile the first is split what currently is in two. the secon is the company doing a distribution of their gains through shares the stockholders can hold the share to receive more dividends in the future or sell them to receive cash right away.

Step-by-step explanation:

9,000,000 sharex x 100% = 9,000,000 new shares

9,000,000 shares x $70 market value = 630,000,000

9,000,000 shares x $10 face value = 90,000,000

additional paid-in 540,000,000