The payment of a stock dividend is a shifting of funds between capital accounts rather than a use of funds.

Question

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When a company issues a stock dividend, instead of distributing cash to shareholders, it transfers a portion of its earned surplus (capital account) to its stock account. This means that the overall value of the company remains the same, and shareholders now own a greater number of shares but with a lower price per share. Therefore, a stock dividend does not use funds but rather reallocates them within the company's capital structure.

The Payment of a Stock Dividend Is a Shifting of Funds