The cost method records all transactiopital stock only. When a corporation sells treasury stock below its cost, it usu Stock. The laws of some states require that corporations restrict their legal capital from distribution to stockholders. The SEC requires companies to disclose their dividend policy in their annual report. The payout ratio is determined by dividing cash dividends paid to common stockholders by net income available to common stockholders. Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholders' equity. When a stock dividend is less than 20-25 percent of the number of common shares outstanding, a company is required to transfer the fair value of the stock issued from retained earnings