[mad max]

As I’m approaching my final review with my exam on Wednesday, I notice something that could cause me an issue, and am having trouble understanding the wording.

In regards to the accounting for Stock Dividends and Stock Splits, I am confused by both the difference between “Stock split effected in form of dividend” and “Stock split” as well as the threshold amounts (“<20-25%” , “>20-25%”)…

Here is my source: Taken directly from Wiley table

“STOCK DIVIDENDS AND SPLITS: SUMMARY OF EFFECTS”
Stock dividend < 20 − 25% of shares outstanding – RE decrease by MKT val of shares issued
Stock split effected in form of dividend > 20 – 25% of shares outstanding – RE decrease by PAR val of shares issued
Stock split – Only memo entry to account for the proportional decrease of book value per share

First question:
What is the wording difference to look out for to be able to know if it should be accounted for as a “stock split effected in form of dividend” or a “stock split”? So, will the question itself state whether it is a “stock split effected in form of dividend” (charge RE for PAR) or “stock split” (no entry)?

Second question:
Can you have, for example, a “stock split effected in form of dividend” of 100%? Or is 2-for-1 always accounted for as a “stock split?” Is there even a maximum percentage for “stock split effected in form of dividend”?

Third question:
What if there is a stock dividend/split that is between 20 and 25% of outstanding shares; otherwise, how do we know if we charge RE for MKT or PAR ? Will it be based on the wording of the question; e.g., whether the question itself defines it as a “stock dividend” or a “stock split effected in form of dividend?”

Appreciate your help, thanks!

AUD - 82
BEC - 90
FAR - 90
REG - 86

Four for four. Licensed in NJ as of 10/18/17

[mad max]

Bump- Still looking for a clarification if anyone knows. Thanks and good luck!

AUD - 82
BEC - 90
FAR - 90
REG - 86

Four for four. Licensed in NJ as of 10/18/17

[Anonymous]

>     Criteria for Treatment as Stock Dividend or Stock Split
505-20-25-1    This Section provides guidance on determining whether stock dividends and stock splits are to be accounted for in accordance with their actual form or whether their substance requires different accounting.

>     Stock Dividend in Form
505-20-25-2    The number of additional shares issued as a stock dividend may be so great that it has, or may reasonably be expected to have, the effect of materially reducing the share market value. In such a situation, because the implications and possible shareholder belief discussed in paragraph 505-20-30-3 are not likely to exist, the substance of the transaction is clearly that of a stock split .

505-20-25-3    The point at which the relative size of the additional shares issued becomes large enough to materially influence the unit market price of the stock will vary with individual entities and under differing market conditions and, therefore, no single percentage can be established as a standard for determining when capitalization of retained earnings in excess of legal requirements is called for and when it is not. Except for a few instances, the issuance of additional shares of less than 20 or 25 percent of the number of previously outstanding shares would call for treatment as a stock dividend as described in paragraph 505-20-30-3.

>     Stock Split in Form
505-20-25-4    A stock split is confined to transactions involving the issuance of shares, without consideration to the corporation, for the purpose of effecting a reduction in the unit market price of shares of the class issued and, therefore, of obtaining wider distribution and improved marketability of the shares.
505-20-25-5    Few cases will arise in which the aforementioned purpose can be accomplished through an issuance of shares that is less than 20 or 25 percent of the previously outstanding shares.

1/14/2017https://asc.fasb.org/print&rendercmd=section&trid=2208803
505-20-25-6    The corporation's representations to its shareholders as to the nature of the issuance is one of the principal considerations in determining whether it shall be recorded as a stock dividend or a stock split. Nevertheless, the issuance of new shares in ratios of less than 20 or 25 percent of the previously outstanding shares, or the frequent recurrence of issuances of shares, would destroy the presumption that transactions represented to be stock splits shall be recorded as stock splits.
 

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