Which of the following is not a direct result of a stock dividend?
a. the number of shares outstanding is increased
b. the market share of each outstanding share is increased
c. the amounts shown in the firm's capital accounts are redistributed
d. a and b
Correct answer: c. the amounts shown in the firm's capital accounts are redistributed.
A stock dividend is an assurance of shares of stock that reflect the current owner's share of accumulated earnings. Stock dividends are accounted for by transferring an amount equal to the fair value of the additional shares issued from undivided profits to a category of permanent capital (common stock or and surplus). The amount transferred or redistributed from undivided profits shall be not less than the par value of the transferred shares being issued. Stock dividends are subject to 12 USC 56, but not 12 USC 60.
This question is somewhat tricky, though, because it doesn't really specific from what vantage point the answers are coming from (i.e., the investor of the firm), so it is a process of elimination. Let's look at some definition ...
This solution provides the best answer and explanation for the following question: Which of the following is not a direct result of a stock dividend?