(d) Regardless of the accounting method used, no dividend
revenue is recognized when an investor receives a proportional stock dividend, because the investor continues to own the same proportion of the investee as before the stock dividend. In
addition, the investee has not distributed any assets to the investor.
Therefore, no entry is prepared to record the receipt of a
stock dividend. The investor simply makes a memo entry to
record the additional number of shares owned, while leaving the
balance in the investment account unchanged. The balance is
then spread over the total number of shares (Previous holdings +
Stock dividend) to determine the new per share cost of the stock.