ECONOMICS

Detailed explanation-1: -The journal entry to record the declaration of the cash dividends involves a decrease (debit) to Retained Earnings (a stockholders’ equity account) and an increase (credit) to Cash Dividends Payable (a liability account).

Detailed explanation-2: -Nonetheless, due to the fact that a share dividend results in a rise in the number of outstanding shares, while the company’s value stays steady, it is prone to dilute the book value based on a per common stock basis. The stock price may be reduced according to this.

Detailed explanation-3: -If a company pays stock dividends, the dividends reduce the company’s retained earnings and increase the common stock account.

Detailed explanation-4: -Since cash dividends are deducted from a company’s retained earnings, there is no effect on the additional paid-in capital. The amount equivalent to the value of stock dividends is deducted from retained earnings and capitalized to the paid-in capital account.