Stock dividends Issued by Subsidiary | Dividend preacquisition and postacquisition Earnings

Are you a CPA candidate or accounting student? Check my website for additional resources such PPT slides, notes, practice multiple choices, exercises and T/F questions. 🚀https://farhatlectures.com/ Connect with me on LinkedIn: ✔  / professorfarhat   💥Facebook: @accountinglectures ⬆Instagram Account: @farhatlectures Twitter: @farhatlectures Email: [email protected] #CPAEXAM#ACCOUNTINGSTUDENT#ADVANCEDACCOUNTING A subsidiary may issue stock dividends in the same class of stock that is held by the par- ent company. The parent company records the receipt of the shares in a memorandum entry only, since a dividend in like stock is not considered income to the recipient. For consolidated purposes, the stock dividend does not alter the investor’s proportionate inter- est in the subsidiary. On the books of the subsidiary, the declaration of a stock dividend is recorded as a transfer from the retained earnings account to one or more paid-in capital accounts. The amount transferred is dependent on whether the dividend is a large or small stock dividend. (Recall that a large stock dividend, one in which the number of shares issued is greater than 20–25% of the outstanding shares, reduces retained earnings by the par value of the stock issued, while a small stock dividend reduces retained earnings by the market value of the stock issued.) Also, stock dividends are assumed to be distributed from the earliest earnings accumulated in the retained earnings balance. Conversely, a cash dividend is considered to be a distribution of the most recent profits (usually current period income). My website: https://farhatlectures.com/ Facebook page:   / accountinglectures   LinkedIn: https://goo.gl/Pp2ter Twitter:   / farhatlectures   Email Contact: [email protected]