Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

Why do most companies report stock splits in the same way as a large stock dividend?

Because both actions require the payment of cash to shareholders.

Because both actions increase the number of shares outstanding without affecting total shareholders' equity.

Because both actions result in a decrease in the market price per share and increase total assets.

Because both actions decrease the par value per share and reduce retained earnings.

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Verified step by step guidance

Understand the concept of stock splits: A stock split increases the number of shares outstanding by dividing existing shares into multiple shares, but it does not change the total shareholders' equity or the value of the company.

Understand the concept of a large stock dividend: A large stock dividend involves issuing additional shares to shareholders, typically from retained earnings, without changing the total shareholders' equity.

Recognize the similarity between stock splits and large stock dividends: Both actions increase the number of shares outstanding while maintaining the same total shareholders' equity, meaning the overall value of the company remains unchanged.

Analyze the impact on market price per share: Both stock splits and large stock dividends typically result in a decrease in the market price per share, making shares more affordable to investors, but they do not affect total assets or liabilities.

Conclude why companies report stock splits similarly to large stock dividends: Since both actions increase the number of shares outstanding without affecting total shareholders' equity, they are reported in a similar manner to reflect their economic equivalence.