A share dividend transfers

Question

Quizplus · Accepted Answer

A share dividend transfers Retained earnings to Contributed capital. This is because a share dividend is a portion of the company's profits that are being distributed to the shareholders in the form of additional shares of stock. The shareholders can choose to hold onto these shares or sell them on the market. The value of these shares is derived from the company's earnings, which are generated by the assets of the company. Therefore, by distributing additional shares, the company is reducing its retained earnings (which is part of equity) and increasing the number of outstanding shares (which is also part of equity), hence the transfer of retained earnings to contributed capital.

A Share Dividend Transfers