D is corrent. A stock dividend has no effect on total stockholders’ equity. No assets are transferred to stockholders as in the case of a cash or property dividend. Stockholders merely receive more shares of stock. The journal entry to record a small stock dividend (less than 20-25%) transfers an amount equal to the fair value of the stock to be issued from retained earnings to paid-in capital. Therefore, one part of stockholders’ equity decreases while another part increases. The journal entry below summarizes the net effect of the entries to record a stock dividend.
| Retained earnings (10,000 × $30) |
300,000 |
|
| Common stock (10,000 × $1) |
|
10,000 |
| Paid-in capital |
|
290,000 |
A is incorrect. A stock dividend has no effect on total stockholders’ equity. No assets are transferred to stockholders as in the case of a cash or property dividend. Stockholders merely receive more shares of stock. The journal entry to record a small stock dividend (less than 20-25%) transfers an amount equal to the fair value of the stock to be issued from retained earnings to paid-in capital. Therefore, one part of stockholders’ equity decreases while another part increases. The journal entry below summarizes the net effect of the entries to record a stock dividend.
| Retained earnings (10,000 × $30) |
300,000 |
|
| Common stock (10,000 × $1) |
|
10,000 |
| Paid-in capital |
|
290,000 |
B is incorrect. A stock dividend has no effect on total stockholders’ equity. No assets are transferred to stockholders as in the case of a cash or property dividend. Stockholders merely receive more shares of stock. The journal entry to record a small stock dividend (less than 20-25%) transfers an amount equal to the fair value of the stock to be issued from retained earnings to paid-in capital. Therefore, one part of stockholders’ equity decreases while another part increases. The journal entry below summarizes the net effect of the entries to record a stock dividend.
| Retained earnings (10,000 × $30) |
300,000 |
|
| Common stock (10,000 × $1) |
|
10,000 |
| Paid-in capital |
|
290,000 |
C is incorrect. A stock dividend has no effect on total stockholders’ equity. No assets are transferred to stockholders as in the case of a cash or property dividend. Stockholders merely receive more shares of stock. The journal entry to record a small stock dividend (less than 20-25%) transfers an amount equal to the fair value of the stock to be issued from retained earnings to paid-in capital. Therefore, one part of stockholders’ equity decreases while another part increases. The journal entry below summarizes the net effect of the entries to record a stock dividend.
| Retained earnings (10,000 × $30) |
300,000 |
|
| Common stock (10,000 × $1) |
|
10,000 |
| Paid-in capital |
|
290,000 |
