Reference no: EM132826145

The Accounting and Economic Consequences of Stock Splits and Stock Dividends

The following note is taken from the 2005 Annual Report of eBay:

• In January 2005, our Board of Directors approved a two- for-one split of our shares of common stock to be issued in the form of a stock dividend. As a result of the stock split, our stockholders received one additional share of our com- mon stock for each share of common stock held of record
• on January 31, 2005. The additional shares of our common stock were distributed on February 16, 2005. All share and per share amounts in these consolidated financial statements and related notes have been retroactively adjusted to reflect this and all prior stock splits for all periods presented.

Required

Problem a. What was the impact of the stock split on each of the three principal financial statements?

Problem b. What reasons can you give for eBay to split its stock?

Problem c. The note says that the stock split was issued in the form of a stock dividend. The implication is that stock splits and stock dividends are equivalent. Is this true?