The dollar amount of total shareholders' equity remains the same for the:
A)Issuance of nonconvertible bonds with detachable stock purchase warrants.
B)Declaration of a cash dividend.
C)Declaration of a stock dividend.
D)Issuance of preferred shares in exchange for convertible debentures.

Question

Quizplus · Accepted Answer

DThe dollar amount of total shareholders' equity remains the same in the case of a declaration of a stock dividend (C) because it merely reallocates amounts within shareholders' equity from retained earnings to common stock and additional paid-in capital, without changing the total. In the case of the issuance of preferred shares in exchange for convertible debentures (D), the transaction swaps one type of equity (convertible debentures, if they are already recognized as equity, or creates equity by issuing preferred shares) for another without affecting the total shareholders' equity.

The Dollar Amount of Total Shareholders' Equity Remains the Same