Stock Dividend vs Stock Split Accounting

Stock dividends and stock splits both increase the number of shares outstanding. However, there are several differences in the accounting for stock dividends and stock splits.

First, a stock split reduces the par value per share, while a stock dividend has no effect on the par value per share.

Second, a stock split doesn't require a journal entry, as it has no effect on the financial statements. A stock dividend, however, does affect the financial statements (the effect depends on whether it is a small stock dividend or a large stock dividend).

Third, a stock dividend increases the common stock account. If the stock dividend is small (less than 20-25% of the shares outstanding), then the stock dividend also reduces the retained earnings account by the fair market value of the stock multiplied by the number of shares being distributed in the stock dividend. If the stock dividend is large (more than 20-25% of the shares outstanding), then the stock dividend reduces the retained earnings account (or the additional paid-in capital account) by the par value of the stock multiplied by the number of shares being distributed in the stock dividend.
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