So a 10% stock dividend basically says that if you own 100 shares before the 10% stock dividend, after it you have 110 shares.
Where is 1/4 coming from?
“September 30, 20X7, the company issued and sold 100,000 shares of common stock”
The above issue was outstanding for only 3 months (Oct, Nov and Dec) of the Year 2017 = > 3/12 => 1/4
Even though the 10% stock dividend occurs only in Mar 2017, it must be applied to all shares outstanding “prior” to the stock dividend.
Hence you take the # shares outstanding just before the stock dividend = 2 million, 10% of which is 0.2 million, giving the total post the stock dividend of 2.2 million shares outstanding. Or simply 2 million x 1.10 = 2.2 million.
Same principle if it was a stock-split instead - you must apply it to all shares outstanding “prior” to the stock split.
If you read the article I cited above, you’ll see.
Short answer: stock splits, reverse stock splits, and stock dividends are retroactive: they change all existing amounts since the beginning of the year. Red shares, blue shares.
Why do you not pro rate the stock dividend of 200,000 by (9/12) since it was issued March 31 so you had those additional shares for 9 months out of the year?
Hi, anyone knows what should we make of our scores on the CFAI website topic questions? Meaning at what percentage range should we decide to go back to the book or instead move on to another topic. any idea? thank you.