The declaration of a stock dividend decreases a corporation's stockholders' equity and increases its liabilities.

Question

Quizplus · Accepted Answer

The declaration of a stock dividend does not decrease a corporation's stockholders' equity or increase its liabilities. Instead, it reallocates a portion of retained earnings or additional paid-in capital to the common stock account. This has the effect of increasing the number of shares outstanding and reducing the value per share, but the overall equity and liability totals will remain the same.

The Declaration of a Stock Dividend Decreases a Corporation's Stockholders