What is the difference between a stock dividend and a stock

Solution

Stock Dividends Company may issue shares of its own stock in lieu of paying cash dividends to stockholders. Not enough cash for a cash dividend Does not require the use of corporate resources and allows cash to be retained for other purposes Increase the number of shares of stock outstanding and decreases market price of the stock if the dividend is large Not taxable for recipient, so wealthier investor may find it attractive Declared and paid in manner similar to cash dividend Stock Splits Similar to a stock dividend, a stock split increases the number of shares outstanding. May be used for same reasons increase the number of shares reduce market price per share make stock accessible to more investors Differences: Legal difference: a stock split affects par value per share of stock, stock dividend does not Accounting difference: stock dividend requires a journal entry, a stock split requires no entry, no equity accounts are affected footnote required to disclose additional shares and new par value Does not affect total par value of the stock