Kitakyushu Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders.

Question:

Kitakyushu Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kitakyushu wishes to discuss the accounting implications of such an authorization with you before the next meeting of the board of directors.

Instructions

(a) The first topic the vice president wishes to discuss is the nature of the stock dividend to the recipient. Discuss the case against considering the stock dividend as income to the recipient.

(b) The other topic for discussion is the propriety of issuing the stock dividend to all “stockholders of record” or to “stockholders of record exclusive of shares held in the name of the corporation as treasury stock.” Discuss the case against issuing stock dividends on treasury shares.

Common Stock
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A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...