Stock dividends and stock splits are similar in all of the following ways except
A)they both involve a pro rata distribution of shares to existing stockholders.
B)they both reduce the stock price.
C)they both decrease retained earnings.
D)have no effect on cash.

Question

Quizplus · Accepted Answer

Stock dividends involve distributing a portion of the company's earnings/retained earnings to existing stockholders in the form of additional shares of stock. This reduces retained earnings on the balance sheet but does not necessarily reduce the stock price. Stock splits do not involve a distribution of earnings, but rather an increase in the number of shares outstanding, which reduces the stock price without affecting retained earnings. Both of these actions have no effect on cash. Therefore, the correct answer is C, as stock splits do not decrease retained earnings.

Stock Dividends and Stock Splits Are Similar in All of the Following