Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

Which of the following best describes a stock dividend?

Increases the total equity of the company.

Requires the company to pay out cash to shareholders.

Reduces the total number of shares outstanding.

Distributes additional shares of the company's stock to shareholders instead of cash.

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Verified step by step guidance

Understand the concept of a stock dividend: A stock dividend is a distribution of additional shares of a company's stock to its existing shareholders, rather than a cash payout. It does not involve cash transactions and does not change the total equity of the company.

Clarify the impact on equity: A stock dividend does not increase or decrease the total equity of the company. Instead, it reallocates amounts within the equity section of the balance sheet, typically moving value from retained earnings to common stock and additional paid-in capital.

Analyze the cash flow: A stock dividend does not require the company to pay out cash to shareholders. This distinguishes it from a cash dividend, which involves a direct cash payment.

Examine the effect on shares outstanding: A stock dividend increases the total number of shares outstanding because additional shares are issued to shareholders. It does not reduce the number of shares outstanding.

Conclude the correct description: The best description of a stock dividend is that it distributes additional shares of the company's stock to shareholders instead of cash, which aligns with the correct answer provided in the problem.