Accounting for dividends payable in capital stock of no par value;

              Bulletin HASKINS & SELLS 53
Accounting for Dividends Payable in Capital Stock of No Par Value
ALTHOUGH the nature of a stock
dividend payable in par-value stock
has been questioned from time to time, the
accounting entries necessary to record
such transactions never have occasioned
any difficulty. In the case of a stock divi­dend
payable in stock without par value,
however, there is some doubt as to the
amount of surplus, if any, to be transferred
to the capital account.
The purposes for which a stock dividend
is declared are not always clear. Pre­sumably
a certain portion of the accumu­lated
profits is to be capitalized. It may
be that the stock carries too high a market
value for trading purposes and new stock
is distributed to reduce each share's pro­portionate
part of the total equity. Or it
may be that the directors do not care to
pay out a cash dividend, and so a stock
dividend is declared. Regardless of pur­pose,
the effect of a stock dividend payable
in par-value stock always is to reduce the
amount of surplus available for future cash
dividends by capitalizing an amount of
surplus equivalent to the total par value of
the stock paid out. This, however, is not
necessarily true of dividends payable in
stock without par value.
Just as with other matters concerning