Lesley Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months have been a real cash drain on the company, however, as profit margins have been greatly narrowed by increasing competition. With a cash balance sufficient to meet only day-today operating needs, the president, Clint Palen, has decided that a stock dividend instead of a cash dividend should be declared. He tells Lesley’s financial vice president, Becca Anderson, to issue a press release stating that the company is extending its consecutive dividend record with the issuance of a 5% stock dividend. “Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend,” he orders. “Just watch our stock rise when we announce the stock dividend; it must be a good thing if that happens.”

Instructions

(a) Who are the stakeholders in this situation?

(b) Is there anything unethical about president Palen’s intentions or actions?

(c) What is the effect of a stock dividend on a corporation’s stockholders’ equity accounts? Which would you rather receive as a stockholder—a cash dividend or a stock dividend? Why?

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