Chapter 11, Problem 2CP

Recording Stock Dividends

Activision Blizzard, Inc., reported the following in the notes to its financial statements.

Stock Split—In July, the Board of Directors approved a two-for-one split of our outstanding common shares effected in the form of a stock dividend (“the split”). The split was paid September 5 to shareholders of record as of August 25. The par value of our common stock was maintained at the pre-split amount of $.000001 per share.

Required:

1. 1. Describe the effects that this transaction would have had on the company’s financial statements. Assume that 600 million shares were outstanding at the time of the transaction, trading at a stock price of $33.

   TIP: Although the financial statements refer to a stock split, the transaction actually involved a 100% stock dividend. Large stock dividends, such as a 100% dividend, are recorded at par value.

2. 2. Why might the board of directors have decided to declare a stock dividend rather than a stock split?