# Which of the following is true of a stock dividend? A. It is a liability. B. The decision to issue a stock dividend resides with shareholders. C. It does not affect total equity but transfers amounts between equity components. D. It creates a cash reserve for shareholders.

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 14, Problem 14MC
Textbook Problem
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## Which of the following is true of a stock dividend?A. It is a liability.B. The decision to issue a stock dividend resides with shareholders.C. It does not affect total equity but transfers amounts between equity components.D. It creates a cash reserve for shareholders.

To determine

Introduction:

A stock dividend distributes shares so that after the distribution, all stockholders have the exact same percentage of ownership that they held prior to the dividend. There are two types of stock dividends—small stock dividends and large stock dividends. The key difference is that small dividends are recorded at market value and large dividends are recorded at the stated or par value.

To choose:

The correct option.

### Explanation of Solution

When a company issues a stock dividend, it distributes additional stock of shares to existing shareholders.

A stock dividend distributes shares so that after the distribution, all stockholders have the exact same percentage of ownership that they held prior to the dividend.

C. It does not affect total equity but transfers amounts between equity components - This statement is true because it affects total equity and does not transfers amounts between equity components.

A. It’s a liability − This statement is not true because it’s a liability until it’s not paid to the shareholders but some companies issue shares of stock as a dividend rather than cash or property...

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