Stock dividends and stock splits differ in that
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A. B. C. D. E.C
A stock split does not involve any accounting entries. Instead, a larger number of new shares are issued to replace and retire all outstanding shares.
Stock dividends and stock splits are both corporate actions that can affect the number of shares outstanding and the price per share of a company's stock. However, they differ in their mechanics and the impact they have on shareholders. Let's break down each answer choice to determine the correct difference between stock dividends and stock splits:
A. Stock splits are paid in additional shares of common stock, whereas a stock dividend results in the replacement of all outstanding shares with a new issue of shares. This answer is incorrect. Both stock dividends and stock splits result in an increase in the number of shares outstanding, but they do so in different ways. In a stock split, the company increases the number of shares outstanding by dividing each existing share into multiple new shares. For example, in a 2-for-1 stock split, each existing share would be split into two new shares. On the other hand, a stock dividend involves the distribution of additional shares of stock to existing shareholders without replacing all outstanding shares.
B. A stock dividend results in a decline in the par value per share. This answer is incorrect. The par value per share represents the nominal value assigned to each share by the company, and it is typically very low or even zero for most publicly traded companies. Both stock dividends and stock splits do not directly impact the par value per share.
C. In a stock split, a larger number of new shares replaces the outstanding shares. This answer is incorrect. In a stock split, a larger number of new shares is created and added to the outstanding shares, rather than replacing them. The proportionate ownership of existing shareholders remains the same, but they hold a larger number of shares.
D. Stock splits involve a bookkeeping transfer from retained earnings to the capital stock account. This answer is incorrect. Stock splits do not involve a transfer of funds or a change in the company's financial accounts. They are purely a mechanical adjustment to the number of shares outstanding.
E. None of these answers. Since none of the provided answer choices accurately explain the difference between stock dividends and stock splits, the correct answer is E. None of these answers.
To summarize, the correct difference between stock dividends and stock splits is that stock dividends involve the distribution of additional shares to existing shareholders without replacing all outstanding shares, while stock splits increase the number of shares outstanding by dividing each existing share into multiple new shares.