On March 1, 2014, Parkinson Company originally issued 10,000 shares of common stock at $4.00 per share. The stock had a par value of $0.01 per share. On March 1, 2015, Parkinson distributed a 12% stock dividend; the market price at that time had dropped to $3.75 per share. Which of the following statements is TRUE?

Question

Quizplus · Accepted Answer

When a stock dividend is distributed, a company's total shares outstanding increase, but the per-share value decreases proportionally. In this case, Parkinson distributed a 12% stock dividend, which means that they issued an additional 1,200 shares (10,000 x 0.12 = 1,200). The market price had dropped to $3.75 per share, so the total value of the additional shares issued was 1,200 x $3.75 = $4,500. Because this is a stock dividend and not a cash dividend, no cash is exchanged and no gain or loss is recorded. Parkinson's net assets are still the same before and after the dividend distribution. Therefore, the correct answer is C.

On March 1, 2014, Parkinson Company Originally Issued 10,000 Shares