Answer (C) is correct . A stock dividend is a transfer of equity from retained earnings to paid-in capital. The debit is to retained earnings, and the credits are to common stock and additional paid-in capital. Additional shares are outstanding following the stock dividend, but every shareholder maintains the same percentage of ownership. In effect, a stock dividend divides the pie (the corporation) into more pieces, but the pie is still the same size. Hence, a corporation will have a lower EPS and a lower book value per share following a stock dividend, but every shareholder will be just as well off as previously. A stock dividend has no effect except on the composition of the shareholders’ equity section of the balance sheet.
Answer (A) is incorrect because A stock dividend has no effect except on the composition of the shareholders’ equity section of the balance sheet.
Answer (B) is incorrect because A stock dividend has no effect except on the composition of the shareholders’ equity section of the balance sheet.
Answer (D) is incorrect because A stock dividend has no effect except on the composition of the shareholders’ equity section of the balance sheet.
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