A corporation's board of directors could prefer a stock split to a stock dividend because a stock split:
A)increases the market price of the stock.
B)reduces Retained Earnings,so the company pays less taxes.
C)does not reduce Retained Earnings,so it does not reduce the ability to declare a cash dividend in the future.
D)increases total stockholders' equity and allows the corporation more flexibility.

Question

Quizplus · Accepted Answer

A company's board of directors may declare a stock dividend rather than a stock split to signal to financial statement users that the company expects significant future earnings (which will replenish the reduction in Retained Earnings caused by the stock dividend).

A Corporation's Board of Directors Could Prefer a Stock Split