The effect of a stock dividend is to reduce:
A)retained earnings and the par value of each share.
B)total stockholders' equity.
C)retained earnings and increase legal capital.
D)total assets and reduce total stockholders' equity.

Question

Quizplus · Accepted Answer

A stock dividend reduces retained earnings because the company is distributing part of its earnings to shareholders in the form of additional shares, rather than cash. This increases the legal capital (common stock or additional paid-in capital) as the value of the issued dividend shares is transferred from retained earnings to the capital accounts.

The Effect of a Stock Dividend Is to Reduce