Will's Notes

Chapter Eight

Introduction to Financial Accounting Home

Stock Split:

• All that happens is the number of shares change – no financial consequences*
• The Par Value per share will change  [There are more shares, but the same amount of money]
• Example:
• 100,000 shares are out when a 2:1 stock split is announced.
• There is $100,000 of common stock and $700,000 APIC
• What is the amount of shares out now?
• 2 * 100,000 = 200,000
• What is the Par value per share?
• $100,000 common stock /  200,000 shares = $0.50 per share Par

Stock Dividend:

• When you see the word “Dividend” it should trigger how you do a cash dividend:
• A cash dividend is recorded:
• Dividends                           $XXX
• Cash                                  $XXX
• BUT in a Stock Dividend we don’t get cash, we get stock, so it is recorded:
• Dividends                           $XXX
• Common Stock                  $XXX
• APIC                                 $XXX
• Number of shares increases with a stock dividend
• Par value per share DOES NOT CHANGE, since we are adding money to common stock

Preferred Dividends:

• IF dividends are declared, Preferred Stock receives dividends before common
• Non-Cumulative Dividends – Preferred receives dividends only if dividends are declared by the company, otherwise lose right to receiving those dividends at a future time
• Cumulative Dividends – Preferred retains rights to any unpaid dividends and must receive ALL current and dividends in arrears before common shares can see a cent.

Dividend Dates:

• Date of Declaration – Company declares dividend – Dividend Liability recorded
• Ex-Dividend Date – Investors must acquire the stock BEFORE this date to receive div.
• Date of Record – Company recognizes a formalized list of owners receiving the div.
• Payment Date – Investor receives actual cash from the company

Chapter Eight

Introduction to Financial Accounting Home