Muenster Inc. is proud that they have paid quarterly dividends for the past 20 years. However, because of a new competitor in the market, Muenster has been slashing prices to keep customers and profit margins have fallen. Their current cash situation is just enough to cover daily operating expenses. The CEO has decided that because of the low cash reserves, that a stock dividend should be declared rather than a cash dividend for this quarter. He has the public relations department issue a press release announcing that Muenster will continue its record of consecutive dividends by issuing a 5% stock dividend. The CEO instructs the public relations department to explain in the press release how a stock dividend is just as good as a cash dividend.

1.) Is there anything unethical about the CEOs actions? Explain. (3 points)

2.) What is the effect of a stock dividend on the stockholder's equity accounts? (3 points)

3.) If you were a stockholder, which would you rather receive--a cash dividend or a stock dividend? Explain. (4 points)

Answer rating: 100% (QA)

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