Small stock dividends take the same pie stockholder equity

Small stock dividends take the same \"pie\" -- stockholder equity -- and divide it into more pieces. Yet current GAAP requires that small stock dividends be valued at the market value of the stock and debited to retained earnings. Do you believe this is an issue that FASB should take up? Justify your position.

Solution

Yes, I believe FASB should consider this issue because this is not logical. If the value of each share were to remain the same when additional shares are distributed without compensation, the total value of the company would grow simply because additional stock certificates are distributed. Instead, the market price per share will decline in proportion to the increase in the number of shares distributed in a stock dividend.