Capitalization of retained earnings occurs when a corporation's stock is split.

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Capitalization of retained earnings does not occur when a corporation's stock is split. Instead, capitalization of retained earnings typically refers to the process of converting retained earnings into share capital by issuing additional shares to existing shareholders, often in the form of a stock dividend.When a stock split occurs, the company increases the number of its outstanding shares by a specific ratio (e.g., 2-for-1 or 3-for-1), but the total value of all shares remains the same. The purpose of a stock split is to make the stock more affordable and attractive to a broader range of investors by reducing the price per share, without affecting the underlying equity of the company or the proportionate ownership of existing shareholders.
In contrast, when retained earnings are capitalized, the company uses the accumulated profits that have not been distributed to shareholders as dividends to issue new shares. These new shares are distributed to existing shareholders in proportion to their current holdings, effectively transforming a portion of the company's retained earnings into paid-up capital. This process increases the company's share capital while reducing the retained earnings by the same amount, but it does not change the total equity of the company.
In summary, capitalization of retained earnings involves the conversion of profits into share capital, while a stock split simply increases the number of shares outstanding without altering the company's equity or capital structure.

Capitalization of Retained Earnings Occurs When a Corporation's Stock Is