Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 18, Problem 8DQ
Summary Introduction
To explain: The treatment of a stock split on a corporation’s financial statements.
Introduction:
Stock split:
A corporate procedure through which a company’s management divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
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How is the accounting for a purchase of a company’s own stock (treasury stock) different from the purchase of stock in another corporation?
Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding.
a. What is meant by a stock split effected in the form of a dividend?
b. From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend.
c. How should a stock dividend that has been declared but not yet issued be classified in a balance sheet? Why?
Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?
A. Common stock
B. Dividends-in-arrears
C. Cash
D. Retained earnings
Chapter 18 Solutions
Foundations of Financial Management
Ch. 18 - Prob. 1DQCh. 18 - Prob. 2DQCh. 18 - Prob. 3DQCh. 18 - Prob. 4DQCh. 18 - Prob. 5DQCh. 18 - Prob. 6DQCh. 18 - Prob. 7DQCh. 18 - Prob. 8DQCh. 18 - Prob. 9DQCh. 18 - Prob. 10DQ
Ch. 18 - Prob. 11DQCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - Prob. 3PCh. 18 - Prob. 4PCh. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - Prob. 7PCh. 18 - Prob. 8PCh. 18 - In doing a five-year analysis of future dividends,...Ch. 18 - Prob. 10PCh. 18 - The shares of the Dyer Drilling Co. sell for $60 ....Ch. 18 - Prob. 12PCh. 18 - Prob. 13PCh. 18 - Phillips Rock and Mud is trying to determine the...Ch. 18 - Prob. 15PCh. 18 - Prob. 16PCh. 18 - Prob. 17PCh. 18 - Prob. 18PCh. 18 - Prob. 19PCh. 18 - Prob. 20PCh. 18 - Prob. 21PCh. 18 - Prob. 22PCh. 18 - Prob. 3WECh. 18 - Prob. 4WE
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- Which of the following are not part of common equity? a. preferred stock c. retained earnings b. common stock d. treasury stockarrow_forwardWhat is the purpose of a stock dividend or stock split? How does a stock split impact a company's financial statements? How does a stock split impact a stockholders' individual investment?What is a reverse stock split?arrow_forwardWhich of the following affects the total Shareholders’ Equity? a. Declaration of a scrip dividend b. Declaration of share split c. Appropriation of retained earnings d. Retirement of treasury sharesarrow_forward
- Please see attached imagearrow_forwardWhat is the effect on the accounting equation when a stock dividend is declared? What is the effect on the accounting equation when a stock dividend is distributed?arrow_forwardWhat is the difference between a stock split and a stock split effected in the form of a stock dividend? Finally, what is a reverse stock split, and why would a company have one?arrow_forward
- a) Distinguish the differences between stock splits and stock dividends.arrow_forwardWhich of the following affects the total Shareholders’ Equity? Appropriation of retained earnings Declaration of a scrip dividend Declaration of share split Retirement of treasury sharesarrow_forwardWhich of the following is true of a stock dividend? A. It is a liability. B. The decision to issue a stock dividend resides with shareholders. C. It does not affect total equity but transfers amounts between equity components. D. It creates a cash reserve for shareholders.arrow_forward
- Which one or more of the following would you not include within the heading Equity and Reserves in a company’s Statement of financial position: Revaluation reserve or Share premium account, or Redeemable Preference Shares or Dividend declared.arrow_forward21. What does IAS 32 provide as regards to the gain from sale of treasury shares? Group of answer choices a. It shall be recognized in profit or loss. b. It shall be credited to share premium. c. It shall be credited to share capital. d. It shall be credited to retained earnings.arrow_forwardWhich of the following is not a method that may be used to account for treasury shares?a. Cost methodb. Par value methodc. Retained earnings methodd. Constructive retirement methodCarrow_forward
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