A gap in GAAP: Accounting for midrange stock distributions

The accounting treatment required for small (less than 25%) and large (100% or greater) stock distributions is well-defined in ARB 43 and other sources of GAAP. However, accounting for midrange stock distributions is not. In a study, it is observed how firms record these midrange stock distributions, and it finds a wide variety of accounting treatments, only some of which are specifically supported by the accounting literature. The study attempts to determine the criteria firms use in selecting an accounting treatment and to assess the legal environment in which these decisions are made. Using a random sample of 388 stock distributions of at least 25% and less than 100%, it investigates 4 criteria for the distinction between dividends and splits: 1. distribution size, 2. accounting treatment, 3. the publicly announced characterization as a dividend or a split, and 4. legal requirements in the state of incorporation. No significant relationships between the accounting treatment and either the distribution size, the announcement characterization or the legal requirements.