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5.12 Stock dividends and splits
Publication date: 31 May 2024
us Financial statement presentation guide
ASC 505-20-20 defines a stock split.
Definition from ASC 505-20-20
An issuance by a corporation of its own common shares to its common shareholders without consideration and under conditions indicating that such action is prompted mainly by a desire to increase the number of outstanding shares for the purpose of effecting a reduction in their unit market price and, thereby, of obtaining wider distribution and improved marketability of the shares. Sometimes called a stock split-up.
ASC 505-20-30-6 states that in the event of a stock split, absent a legal requirement to do so, it is not necessary to transfer the amount from retained earnings to APIC and common stock (for the change in par value). Therefore, the only presentation requirements in the event of a stock split are to update:
- The shares outstanding
- The par amount of the stock on the face of the balance sheet
5.12.1 Differentiation between stock dividends and stock splits
When a stock dividend is in the form of a stock split, as described in ASC 505-20-25-2, to avoid confusion, a reporting entity should avoid solely using the word "dividend." Rather, one way to describe the transaction is as "a stock split effected in the form of a dividend."
Refer to FSP 7 for discussion of the impact of stock dividends and stock splits on earnings per share.
5.12.2 Changes in capital structure
Refer to FSP 28.5.2 for guidance on the balance sheet presentation of capital structure changes due to a stock dividend, stock split, or reverse split after the balance sheet date. Since stock dividends and stock splits should be given retroactive recognition in computing earnings per share (ASC 260-10-55-12 and FSP 7.6), they are also given retroactive recognition in computing dividends per share. When dividends per share are presented on other than the historical basis, as a result of retroactive recognition, reporting entities should disclose the basis of presentation in the footnotes.
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