Greenwood Corporation has paid 60 consecutive quarterly cash dividends
(15 years). The last 6 months have been a real cash drain on the
company, however, as profit margins have been greatly narrowed by
increasing competition. With a cash balance sufficient to meet only
day-to-day operating needs, the president, Gil Mailor, has decided that a
stock dividend instead of a cash dividend should be declared. He tells
Greenwood’s financial vice-president, Vicki Lemke, to issue a press
release stating that the company is extending its consecutive dividend
record with the issuance of a 5% stock dividend. “Write the press
release convincing the stockholders that the stock dividend is just as
good as a cash dividend,” he orders. “Just watch our stock rise when we
announce the stock dividend; it must be a good thing if that happens.”
Instructions
(a) Who are the stakeholders in this situation?
(b) Is there anything unethical about president Mailor’s intentions or actions?
(c) What is the effect of a stock dividend on a corporation’s
stockholders’ equity accounts? Which would you rather receive as a
stockholder—a cash dividend or a stock dividend? Why?
Click here for the solution: Greenwood Corporation has paid 60 consecutive quarterly cash dividends (15 years)
