Which of the following is true when a 10% stock dividend is declared and distributed?

Which of the following is true when a cash dividend is declared and paid?

1. The firm is left with a liability to pay the dividend.

2. Retained earnings is reduced by the amount of the dividend.

3. Retained earnings is increased by the amount of the dividend.

4. Retained earnings is not influenced by the dividend.

5. Stockholders’ equity is increased.

Which of the following is true when a 10% stock dividend is declared and distributed?

1. Retained earnings is increased.

2. Stockholders’ equity is increased.

3. Stockholders’ equity is decreased.

4. Authorized shares are increased.

The overall effect is to leave stockholders’ equity in total and each owner’s share of stockholders’ equity is unchanged; however, the total number of shares increases.