Question

Which of the following is true of a stock dividend? Multiple Choice It is a liability on the balance sheet. The decision to declare a stock dividend resides with the shareholders. Transfers a portion of equity from retained earnings to a cash reserve account. Does not affect total equity, but transfer amounts between the components of equity. Reduces a corporation's assets and stockholders' equity.

Answer 1

Answer:

Yes it is true that a stock dividend does not affect total equity.

Explanation:

A stock dividend is a non cash payment given to shareholders. Instead of cash, additional shares that is equivalent to the earnings that accrue is given to shareholders.

While this may increase the number of shares held, it does not affect total equity.

One of the benefits of stock dividends tax exemption and retained equity which translates to additional investment.

However, the additional; shares created could dilute the share prices.