Corporate accounting for ordinary stock dividends;

              THE TERM "stock dividend" refers to the issuance, by a corporation, of additional shares of any class of its own capital stock to the pres-ently existing stockholders of the same or a different class of shares without consideration moving from such stockholders to the corpora-tion. Such a stock issue involves an increase in the legal capital of the corporation; a "split up" or division of issued shares into a greater number of shares of the same class without change in the aggregate amount of legal capital is therefore not regarded as a stock dividend. In addition, the term does not cover the distribution of shares in an-other corporation theretofore held as an investment, or the issuance to shareholders of rights to subscribe to additional shares.
The stock dividends with which this bulletin is concerned are those stock dividends, whether periodic or otherwise, which represent a capitalization of earned surplus and are issued in shares of common stock to the holders of like shares; such dividends may be designated as "ordinary" stock dividends. It is recognized that in some states there is statutory authorization for stock dividends, so-called, (a) with-out any addition to legal capital, or (b) by making a transfer of paid-in or other capital surplus, or of appreciation surplus, to legal or stated capital. Since these procedures have nothing to do with earnings or earned surplus and can only be justified as recapitalizations or adjust-ments of capital structure, they should be so designated and dealt with accordingly, with appropriate notice to the stockholders. In addition, the term "stock dividend" is commonly used to describe the issuance of preferred shares to the holders of common shares, common shares to the holders of preferred shares, and preferred shares to the holders of preferred shares. These situations are unusual, and they are not dealt with in this bulletin.
As used herein, the term "capitalization of earned surplus" refers to a transfer from earned surplus to capital account, whether the latter be designated as capital stock or capital surplus.
The discussion of corporate accounting for such stock dividends
99
Accounting Research
BULLETINS
Issued by the Committee on Accounting Procedure, American Institute of Accountants, 13 East 41st Street, New York, N. Y. Copyright 1941 by American Institute of Accountants
September 1941
Corporate Accounting for Ordinary Stock Dividends
No. 11