Reference no: EM1312934

Explanation about the main differences between a stock dividend and a stock split.

On January 1, 2007, Frederiksen Inc.'s Stockhlders' Equity category appeared as follows:

Preferred stock, $80 par value, 7%
3000 shares issues and outstanding	$240,000
Common stock, $10 par value,
15,000 shares issued and outstanding	150,000
Additional paid-in capital-Preferred	60,000
Additional paid-in capital-Common	225,000
Total contributed capital	$675,000
Retained earnings	2,100,000
Total stockholders' equity	$2,775,000

 
The preferred stock is noncumulative and nonparticipating. During 2007, the following transactions occurred:
a)On March 1, declared a cash dividend of $16,800 on preferred stock. Paid the dividend on April 1.
b)On June 1, declared a 5% stock dividend on common stock. The current market price of the common stock was $18. The stock was issued on July 1.
c)On September 1, declared a cash dividend of $0.50 per share on the common stock; paid the dividend on October 1.
d)On December 1, issued a 2-for-1 stock split of common stock, when the stock was selling at $50 per share.

Question:

Write a paragraph that explains the difference between a stock dividend and a stock split.