Answer (D) is correct . The issuance of a stock dividend results in a debit to retained earnings and credits to contributed capital for the fair value of the stock. A split-up effected in the form of a dividend requires capitalization of retained earnings equal to the amount established by the issuer’s state of incorporation (usually par value). Consequently, neither a stock dividend nor a split-up effected in the form of a dividend has a net effect on equity.
Answer (A) is incorrect because Cash dividends reduce equity. They involve an immediate or promised future nonreciprocal distribution of assets.
Answer (B) is incorrect because Property dividends reduce equity. They involve an immediate or promised future nonreciprocal distribution of assets.
Answer (C) is incorrect because Liquidating dividends reduce equity. They involve an immediate or promised future nonreciprocal distribution of assets.
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