Multiple Choice
A stock dividend is recorded with a transfer from:
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12. Stockholders' Equity
Stock Dividends
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What are the effects of a stock split that is accounted for as a 100% stock dividend?
A
The number of shares outstanding doubles, and the par value per share is halved, but total stockholders' equity remains unchanged.
B
The number of shares outstanding remains the same, but the par value per share is doubled.
C
Retained earnings increase while common stock decreases.
D
Total stockholders' equity increases due to the issuance of new shares.
Verified step by step guidance1
Understand the concept of a stock split: A stock split is a corporate action that increases the number of shares outstanding while proportionally reducing the par value per share. It does not affect the total stockholders' equity.
Recognize that a 100% stock dividend is similar to a stock split in its effects. It doubles the number of shares outstanding and halves the par value per share, but the total stockholders' equity remains unchanged.
Analyze the options provided: The correct answer must reflect the doubling of shares outstanding, halving of par value per share, and no change in total stockholders' equity.
Eliminate incorrect options: For example, the option stating 'Retained earnings increase while common stock decreases' is incorrect because retained earnings and common stock are reallocated, but total equity remains unchanged.
Select the correct answer: The correct description is 'The number of shares outstanding doubles, and the par value per share is halved, but total stockholders' equity remains unchanged.'
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