Q32E - Horngren'S Financial And Managerial Accounting

Question

Determining the effects of cash dividends, stock dividends, and stock splits

Complete the following chart by inserting a check mark for each statement that is true.

Cash dividend Stock dividend Stock split

Decreases retained earnings

Has no effect on a liability

Increases paid-in capital by thesame amount that it decreasesretained earnings

Decreases both total assets andtotal stockholders’ equity

Has no effect on totalstockholders’ equity

Step-by-Step Solution

Answer

Cashand Stock dividenddecreases retained earnings.

Cashdividend,Stock dividend, and Stock Splithas no effect on a liability.

Stock dividendincreases paid-in capital by the same amount that it decreases retained earnings.

Cash dividenddecreases both total assets and total stockholders’ equity.

Stock dividend and Stock dividendhas no effect on total stockholders’ equity.

Step 1: Basic Introduction

Cash dividends are an availability of a part of the profit or surplus as a dividend for the stockholders of the corporation. Stock dividends are a release of stock as dividend for the stockholders of the corporation. Stock split is a distribution of issues shares in the ratio as decided by corporation.

Step 2: The effects of cash dividends, stock dividends, and stock splits

 

	Cash dividend	Stock dividend	Stock split
Decreases retained earnings	✓	✓
Has no effect on a liability	✓	✓	✓
Increases paid-in capital by the same amount that it decreases retained earnings		✓
Decreases both total assets and total stockholders’ equity	✓
Has no effect on total stockholders’ equity		✓	✓