The correct answer is A, zero.
Unlike a cash dividend where resources of the firm are distributed to shareholders, a stock dividend involves moving an amount from Retained Earnings, to the Paid In Capital section of the Shareholder’s Equity section of the balance sheet. The total Shareholder’s Equity remains the same.
As an extra note, dividends under 20 to 25 percent, are considered small stock dividends, and require the transfer of the market value, number of shares times the market value, to Paid in Capital, from Retained Earnings. Anything above those percentages, would be a large stock dividend and we would use the par value as the basis for the valuation.
Hope that helps.
Joe D.
