If a 10% stock dividend is declared, current liabilities are A) Unchanged by the

Question

If a 10% stock dividend is declared, current liabilities are

A) Unchanged by the dividend declaration and increased by the dividend distribution.

B) Unchanged by the dividend declaration and decreased by the dividend distribution.

C) Increased by the dividend declaration and unchanged by the dividend distribution.

D) Unchanged by either the dividend declaration or the dividend distribution.

Question 10

Stayman Co. declared a 30% stock dividend. This transaction

A) Increases total equity and retained earnings.

B) Decreases total equity and retained earnings.

C) Has no effect on total equity or retained earnings.

D) Has no effect on total equity but decreases retained earnings.

Please can you explain wchic one and why is the answer

If a 10% stock dividend is declared, current liabilities are

A) Unchanged by the dividend declaration and increased by the dividend distribution.

B) Unchanged by the dividend declaration and decreased by the dividend distribution.

C) Increased by the dividend declaration and unchanged by the dividend distribution.

D) Unchanged by either the dividend declaration or the dividend distribution.

Explanation / Answer

1 Current liabilities are Unchanged by either the dividend declaration or the dividend distribution. The declaration of stock dividend does not affect current liabilities Option D is correct 2 The declaration of stock dividend decreases retained earnings and increases paid-in capital. The total equity however remains unchanged Stock dividends are declared out of retaiend earnings so retained earnings decreases Option D is correct

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