The payment of a stock dividend is a shifting of funds between stockholders' equity accounts rather than an outflow of funds.

Question

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When a company pays a stock dividend, it issues additional shares of its own stock to its existing shareholders. The total value of the company remains the same, but the number of shares increases, resulting in a decrease in the par value per share. Therefore, it is not an outflow of funds but a shifting of funds between stockholders' equity accounts.

The Payment of a Stock Dividend Is a Shifting of Funds