D is corrent. When a stock dividend is declared by the board of directors, the following journal entry is made:| Retained earnings | (FV of stock) | | | Common stock of dividend distributable | | (Par value of stock) | | Paid-in capital in excess of par | | (Plug) |
Therefore, the declaration of a stock dividend will decrease retained earnings. When a stock split is declared, however, only a memo entry is made, and there is no effect on retained earnings.
A is incorrect. When a stock dividend is declared by the board of directors, the following journal entry is made:| Retained earnings | (FV of stock) | | | Common stock of dividend distributable | | (Par value of stock) | | Paid-in capital in excess of par | | (Plug) |
Therefore, the declaration of a stock dividend will decrease retained earnings. When a stock split is declared, however, only a memo entry is made, and there is no effect on retained earnings.B is incorrect. When a stock dividend is declared by the board of directors, the following journal entry is made:| Retained earnings | (FV of stock) | | | Common stock of dividend distributable | | (Par value of stock) | | Paid-in capital in excess of par | | (Plug) |
Therefore, the declaration of a stock dividend will decrease retained earnings. When a stock split is declared, however, only a memo entry is made, and there is no effect on retained earnings.C is incorrect. When a stock dividend is declared by the board of directors, the following journal entry is made:| Retained earnings | (FV of stock) | | | Common stock of dividend distributable | | (Par value of stock) | | Paid-in capital in excess of par | | (Plug) |
Therefore, the declaration of a stock dividend will decrease retained earnings. When a stock split is declared, however, only a memo entry is made, and there is no effect on retained earnings. |
