In this module, you will learn about cash dividends, stock dividends, and stock split transactions, and how to analyze them. Cash dividends reduce stockholders' equity and create a liability when they are declared by the board of directors. The liability is reduced when the dividends are paid. Stock dividends are pro rata distributions of a company's stock to existing owners. The transaction typically is accounted for by transferring an amount out of Retained Earnings and into contributed capital accounts. A stock split also involves the distribution of additional shares to owners but no additional amount is transferred into the contributed capital accounts. Instead, the per$-$share par value of stock is reduced.

Knowledge Check $01$

Which of the following describes the effect of a stock dividend?

multiple choice

Decreases Cash

Increases total stockholders$$ equity

Decreases total stockholders$$ equity

Does not affect total stockholders$$ equity

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