APPENDIX

379

New York Stock Exchange
Further Announcement on Stock Dividends
The following statement supplements and extends but does not alter the
Report of the Special Committee on Stock Dividends adopted by the Governing
 Committee on September I1, 1929.
in the study of the questions leading up to that report and in considering
the problems arising out of giving effect to it, the Committee on Stock List
has reached the following definite conclusions, which it seems well to make
public for the information of corporations desiring listing :
As recognition of the importance of earnings in the evaluation of
securities tends to be emphasized, the importance of an accurate segregated
 statement of Earned Surplus in the Balance Sheet does so likewise.
 Accounting should be adapted to the end that this account should
show at any given time the exact amount of realized undistributed
earnings, either from date of organization, or, in the event of recapitalization,
 from some fixed stated date. The fact that state laws may
permit stock dividends to be paid without any charge against earnings
or earned surplus or with only a nominal charge has no bearing upon
the correct accounting procedure to be foliowed.
An occasional large split-up, made for convenience in the form ot
a stock dividend and capitalized at a nominal amount, whether charged
against Earned Surplus or Capital Surplus is not objectionable, if
accompanied by a statement that it is in effect a split-up.
The issuance of periodical Stock Dividends with either no charge
or with an insufficient charge against Earnings or Earned Surplus,
while not illegal under the laws of some States, is apt to mislead stockholders
 and is not regarded as good practice. If such dividends are
declared they should be accompanied by a statement clearly indicating
either that they are not true earned stock dividends, or, if actually
earned but insufficiently charged against Earnings or Earned Surplus,
that the method of accounting leaves in Earned Surplus an amount
which may be again used for dividends without further earnings.
In the accounting for Stock Dividends upon the books of the issuing
Company, whether for stock with par value or without par value,
Capital and Capital Surplus should be regarded together as the consideration,
 other than earnings, represented by the stock. The sum per
share of these two accounts is the minimum amount, per share to be
issued as a Stock Dividend, which should be charged against Earnings
or Earned Surplus in order that such dividend may be termed a true
earned Stock Dividend properly accounted for and in order that Earned
Surplus may not include a fictitious amount available for further dividends
 without further earnings.
In cases where there exist substantial uncapitalized assets, tangible
or intangible, the amount of the charge against Earnings or Earned
Surplus should be larger than this minimum amount.
in cases where stock is issued either as interest upon funded debt
or as a dividend upon stock of another class with a cash alternative,
the amount of such cash alternative measures the minimum amount
properly to be charged against Earnings or Earned Surplus. The effect
of issuing stock as interest or dividends upon other securities should
be merely to conserve cash and not to add to the apparent Earnings or