How will a company's retained earnings and total stockholders' equity be affected by the recording of the declaration of a stock dividend? (Assume the stock dividend is distributed at a later date.) $\begin{array}{lll}
& \text { Retained Earnings }& \text { Total Stockholders Equity}\
\text { I. } & \text { decrease } & \text { decrease } \
\text { II. } & \text { decrease } & \text { no effect } \
\text { III. } & \text { no effect } & \text { no effect }\
\text { III. } & \text { no effect } & \text { decrease }
\end{array}$

Question

How will a company's retained earnings and total stockholders' equity be affected by the recording of the declaration of a stock dividend? (Assume the stock dividend is distributed at a later date.) $\begin{array}{lll}
& \text {  Retained Earnings }& \text { Total Stockholders Equity}\ 
 \text { I. } & \text { decrease } & \text { decrease } \
\text { II. } & \text { decrease } & \text { no effect } \
\text { III. } & \text { no effect } & \text { no effect }\
\text { III. } & \text { no effect } & \text { decrease }
\end{array}$

Quizplus · Accepted Answer

Recording the declaration of a stock dividend affects the following:

I. Cash is not affected as no cash is distributed to stockholders. 
II. Retained earnings decrease, as they are transferred to the capital stock account to reflect the issuance of additional shares. 
III. Common stock increases, as additional shares are distributed to stockholders. 
IV. Total stockholders' equity remains the same because while common stock increases, retained earnings decrease by the same amount.

Therefore, the correct choice is B.

How Will a Company's Retained Earnings and Total Stockholders' Equity