Which of the following statements with respect to stock dividends is correct?

Question

Quizplus · Accepted Answer

When a corporation declares a dividend, the amount of the dividend paid to shareholders is generally not taxable to the extent that it comes out of the corporation's retained earnings. However, if the corporation paid the dividend out of its capital, the dividend will be taxable to the extent that the corporation has increased its paid-up capital (PUC) in the process of declaring the dividend. This means that a stock dividend, which is issued out of the corporation's PUC, will be taxable to the extent that the corporation has increased its PUC in the process of declaring the dividend. Choices A, B, and D are incorrect as they do not reflect the tax treatment of stock dividends.

Which of the Following Statements with Respect to Stock Dividends