(Stock Dividends and Splits) The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions.
(a) What is a stock dividend? How is a stock dividend distinguished from a stock split
(1) from a legal standpoint, and
(2) from an accounting standpoint?
(b) For what reasons does a corporation usually declare a stock dividend a stock split?
(c) Discuss the amount, if any, of retained earnings to be capitalized in connection with a stock dividend.(AICPA adapted)