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What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a two-for-one split? Assume that either action is feasible.

 
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Fundamentals of Financial Management, Concise Edition (MindTap Course List)
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ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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  • The directors of Merchant 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.
    Identify all of the following statements that are correct with regards to dividends and stock splits: a. The record date is the date that will determine who is eligible to receive a dividend. b. When a stock split occurs, a share’s market value will decline and, initially, each shareholder’s wealth will decline. c. Companies are not required to declare and issue dividends to common shareholders, but companies are required to declare and issue a dividend to preferred shareholders. d. If a person holds 25% of the common shares in a company, they will receive 25% of the total dividends paid on common shares. e. Both cash dividends and stock dividends decrease shareholders’ equity. f. The advantage of a stock split is that it may increase the marketability of the shares by lowering the share price. g. The Canada Business Corporations Act requires that stock dividends be recorded at book value. h. When a stock dividend is declared, additional shares will be issued to each shareholder based…
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