Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 6

For the following questions, circle the best response.

Which of the following is not true about a 10% stock dividend?

a. Retained earnings decrease.

b. Paid-in capital increases.

c. Par value decreases.

d. Information concerning the market value of the stock is needed to record the stock dividend journal entry.

e. Total stockholders’ equity remains the same.

Step 1 of 6

(a)

A 10% stock dividend will cause retained earnings to decrease. This is because the retained earnings account is considered a corporation’s accumulated earnings, and a stock dividend represents a return of those earnings to shareholders.