What is a stock dividend?
Stock dividends are issued by a company and increase the number of shares outstanding. Stock dividends are paid out of retained earnings, so a stock dividend would decrease retained earnings. However, common stock increases for the same amount, so the overall impact to total equity is $0.
For example, if the company had common stock outstanding of 1,000 shares and they issued a 20% stock dividend, then they would be issuing another 200 shares of common stock to investors. This would be a debit to retained earnings to fund the increase in common stock outstanding.
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What is a dividend?
A dividend is when a company distributes profits to its shareholders. Typically, dividends are in the form of cash and are distributed when the company has excess cash that is not reinvested into the business. A company can also issue a stock dividend or property dividend.