Assuming the issuing company has only one class of stock, a transfer from retained earnings to capital stock equal to the market value of the shares issued is ordinarily a characteristic of
A) Either a stock dividend or a stock split
B) Neither a stock dividend nor a stock split
C) A stock split but not a stock dividend
D) A stock dividend but not a stock split

Question

Quizplus · Accepted Answer

When a company issues a stock dividend, it transfers a portion of retained earnings to capital stock, which represents an increase in the number of outstanding shares. This transfer is made at the market value of the shares issued. A stock split, on the other hand, does not involve a transfer between retained earnings and capital stock. Therefore, choice A and C are incorrect. Choice B is incorrect as well because retained earnings may be transferred to capital stock for other reasons, such as a treasury stock transaction.

Assuming the Issuing Company Has Only One Class of Stock