Small stock dividend

Definition

A small stock dividend is a distribution of additional shares to existing shareholders, typically less than 20-25% of the company's previously outstanding shares. It increases the number of shares while decreasing the market price per share, without affecting total equity.

5 Must Know Facts For Your Next Test

1. The retained earnings account is debited when recording a small stock dividend.
2. The fair market value of the additional shares issued is used to record a small stock dividend.
3. Small stock dividends do not affect the overall equity of the company; they merely reallocate amounts within equity accounts.
4. Small stock dividends increase the number of shares outstanding and decrease earnings per share (EPS).
5. When declared, a journal entry for a small stock dividend includes debits to Retained Earnings and credits to Common Stock Dividends Distributable and Additional Paid-In Capital.

Review Questions

Related terms

Retained Earnings:

The accumulated net income that has been retained by a company rather than distributed to shareholders as dividends.

Earnings Per Share (EPS): A financial metric indicating the portion of a company's profit allocated to each outstanding share of common stock.

Additional Paid-In Capital: The amount paid by investors for shares above their par value, often adjusted during transactions like small stock dividends.