Question

Stock dividends:

            a) reduce total assets.

            b) reduce total equity.

            c) increase total assets.

            d) increase total equity.

            e) None of the above is correct.

Please Provide a brief explanation

Answer 1

E) none of the above is correct

Explanation -

Stock dividend are dividend paid but not in cash. It is giving dividend but in form of shares not cash. So that will effect retained earnings balance and share captial balance in shareholders equity. It doesnot effect total assets and also not effect total equity as there is entry by debiting retained earnings and crediting shares captial both of which are in shareholders equity. So the answer is none of the above is correct.