A stock dividend does not reduce retained earnings, alter the par value of common shares or have no effect on the market value if 100%. However, it does increase the number of shares held by the shareholder, thus increasing their overall wealth if the market value of the shares remains unchanged.

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A Stock Dividend

Question 118

Multiple Choice

A stock dividend:

A) If less than 20% to 25%, reduces retained earnings by the par value of shares distributed in the dividend
B) Increases the wealth of the recipient if the market value of the shares are unchanged by the stock dividend
C) Alters the par value of the common shares
D) If 100%, has no effect on the market value of the shares

Correct Answer: