Cash dividends, when formally declared by the board of directors, reduce total assets and total stockholders equity. You should understand how current and cumulative dividend preferred stock preferences affect the declaration of dividends on common stock. Stock dividends, pro rata distributions of the corporation s stock to its stockholders, do not affect the total assets, liabilities or stockholders equity of the corporation. Stock dividends only affect certain account balances within stockholders equity. Stock splits do not affect total assets, liabilities or stockholders equity, or any of the individual account balances within stockholders equity.
Stock splits affect only the par value of the stock and the number of shares outstanding.
You should be familiar with the characteristics of cash dividends, stock dividends, and stock splits, and know how to record dividend transactions. You will also need to know how to compute the dividend yield ratio and dividend payout ratio. The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use and Privacy Policy .