Answer (B) is correct . A stock dividend capitalizes a portion of retained earnings, leaving the firm’s book value unchanged. Since more shares are outstanding after the dividend is distributed, the denominator of the book value per common share ratio is higher, driving the overall ratio down.
Answer (A) is incorrect because Only equity accounts are affected by a stock dividend.
Answer (C) is incorrect because A stock dividend merely involves moving an amount from one equity account to another, leaving the debt to equity ratio unchanged.
Answer (D) is incorrect because Only equity accounts are affected by a stock dividend.
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