Cash
To pay dividend payable
————1909.
36. Declaring a Stock Dividend. Not all dividends are paid or payable in cash. Sometimes the directors declare a dividend payable in stock and this is known as a stock dividend. There may be treasury stock in possession of the treasurer, and if the books show a surplus, which would make it proper to declare a cash dividend, a dividend may be declared payable in treasury stock. When such a dividend is declared the entry is—
Profit and Loss
Stock dividend
A dividend of——% declared
by the board of directors
————1909 payable————1909,
payment to be made in
treasury stock
Stock dividend
Treasury stock
To pay stock dividend
declared————1909.
The shares are then transferred on the stock books debiting treasury stock and crediting stockholders.
It is not absolutely necessary that a company possess treasury stock to declare a stock dividend. When current profits are large or a surplus, larger than the requirements of the business demand, has been accumulated, a stock dividend may be declared by issuing additional shares, provided the original stock has not all been subscribed for.