Shetland Ltd declares and pays a share dividend of 8 000 $2 shares. What is the effect on total equity in the company balance sheet?

Question

Quizplus · Accepted Answer

When a share dividend is declared and paid, the company issues new shares to shareholders instead of cash. The Share Capital account increases by the value of the shares issued, in this case $16,000 (8,000 shares x $2 per share). However, since the shares are issued as a dividend, the Reserves account decreases by the same amount, resulting in no change to the total equity of the company.

Shetland Ltd Declares and Pays a Share Dividend of 8