ISSUES FOR DISCUSSION
Do stock dividends represent economic exchanges between a corporation and its shareholders?
When Hershey Foods declared a 100 percent stock dividend, 149.5 million of its shares were outstanding. Assume that the stock dividend was declared and paid on the same day.
a. How many shares of stock were outstanding after the dividend?
b. The market price of the stock was approximately $46 per share, and the par value was $1 per share on the day the dividend was declared and paid. Provide the journal entry to record the distribution.
c. Compute the value of Hershey if all outstanding shares, prior to the stock dividend, could have been sold for $46 each. Using this value, compute the per-share value of the company's outstanding shares after the stock dividend.
d. Assume that Mr. Jones owned 1 million shares prior to the stock dividend. How many shares did Mr. Jones own after the stock dividend? What percentage of the company did Mr. Jones own before and after the stock dividend? What was the value of Mr. Jones's total shareholdings before and after the stock dividend based on the amounts from part (c)?
e. Does a stock dividend actually represent an economic exchange between a corporation and its shareholders? Why or why not?
f. Provide several reasons why a company would issue a stock dividend.
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