(Stock Dividends and Splits) The directors of Amman Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions.

Instructions

(a) What is a stock dividend? How is a stock dividend distinguished from a stock split (1) from a legal standpoint, and (2) from an accounting standpoint?

(b) For what reasons does a corporation usually declare a stock dividend? A stock split?

(c) Discuss the amount, if any, of retained earnings to be capitalized in connection with a stock dividend.