Which of the following statements is most correct?
A) "New-stock" dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don't change the total equity of a firm.
B) Investors receiving stock dividends must pay taxes on the new shares at the time the stock dividends are received.
C) Stockholders pay no income tax on dividends reinvested in a dividend reinvestment plan.
D) Both statements a and b are correct.
E) None of the statements above is correct.

Question

Quizplus · Accepted Answer

Explanation: Statement A is incorrect because while both increase the number of shares, stock dividends do not change total equity, but new-stock DRIPs can increase equity. Statement B is incorrect because stock dividends are generally not taxed until sold. Statement C is incorrect as reinvested dividends are typically taxed as income.

Which of the Following Statements Is Most Correct