Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 67

Calculate stock dividend shares and cash dividend amounts Assume that you own 3,000 shares of Blueco, Inc.’s, common stock and that you currently receive cash dividends of $.42 per share per year.

Required:

a. If Blueco, Inc., declared a 5% stock dividend, how many shares of common stock would you receive as a dividend?

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b. Calculate the cash dividend per share amount to be paid after the stock dividend that would result in the same total cash dividend (as was received before the stock dividend).

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c. If the cash dividend remained at $0.42 per share after the stock dividend, what per share cash dividend amount without a stock dividend would have accomplished the same total cash dividend?

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d. Why would a company have a dividend policy of paying a $0.10 per share cash dividend and issuing a 5% stock dividend every year?

Step 1 of 8

Computation of stock dividend and cash dividend

Stock dividend: It is a mode of dividend disbursement made in the terms of additional shares, instead of a cash payout.

Cash dividend: It is a mode of dividend disbursement made in the form of cash only. Usually this disbursement made out of the company's current or accumulated profits.