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A small stock dividend:_________. 1. increases the common stock account by the market price of each share issued. 2. reduces cash by the total market value of the issued shares. 3. affects the par value per share but not the equity account balances. 4. reduces retained earnings by the market price of each share issued. 5. does not affect the capital in excess of par value account.

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Answer:

Option 4 is correct

Explanation:

The reason is that the small stock dividend is a type of dividend in which the issuance of shares is less than 26% of total shares outstandings to existing shareholders. This issuance will be at market value and as it is a dividend so it will not reduce the cash balance (dividend is in shares) which will reduce the retained earnings with the market value of the shares because the entry would be:

Dr Retained Earnings XX

Cr                Share Capital    XX

Cr                Share Premium XX

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