What type of stock dividend is recorded at par value from retained earnings when it exceeds 25%?

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Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

When a company declares a stock dividend that exceeds 25% of its outstanding shares, it is categorized as a large stock dividend. For large stock dividends, the accounting treatment involves transferring the par value of the newly issued shares from retained earnings to the common stock account. Specifically, this means that the amount recorded is based on the par value of the shares issued, reflecting the company's commitment to providing value to shareholders without impacting cash reserves.

In contrast, small stock dividends (those less than 25%) are recorded based on the fair market value of the shares issued rather than their par value. This difference in treatment highlights the significance of the proportion of the dividend relative to the total outstanding shares.

The other options do not accurately describe the situation. A dividend in kind refers to payments made to shareholders in the form of goods or services rather than cash or stock, while a special dividend is a one-time distribution of earnings, usually in cash, that is not related to the company's regular dividend policy. Thus, understanding these distinctions emphasizes why a stock dividend exceeding 25% is specifically considered large and recorded at par value from retained earnings.