Which of the following is not true about a stock dividend? With a stock dividend

Question

• Which of the following is not true about a stock dividend?
  • With a stock dividend, the firm issues a percentage of outstanding stock as new shares to existing shareholders.
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  • The overall effect of a stock dividend is to leave total stockholders' equity and each owner's share of stockholders' equity unchanged.
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  • In theory, with a stock dividend, total market value considering all outstanding shares should not change.
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  • Since the number of shares changes under a stock dividend, any ratio based on the number of shares must be restated.
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  • The accounting for a stock dividend, assuming the distribution is relatively small, requires that the par value of the stock be removed from retained earnings.

Explanation / Answer

The accounting for a stock dividend, assuming the distribution is relatively small, requires that the par value of the stock be removed from retained earnings.

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