Final answer:
Receipt of capital dividends results in an increase to the capital dividends account, as they are non-taxable distributions from the profits of another corporation that can be passed on to shareholders tax-free, influencing the company's equity.
Step-by-step explanation:
The correct answer to which activity will result in an increase to the capital dividends account is C. Receipt of capital dividends. When a company receives capital dividends, they are non-taxable amounts received from the profits of another corporation and are added directly to the capital dividends account. This account represents a tax-free portion of a corporation’s surplus that can be distributed to its shareholders without incurring income tax, thus impacting the equity section of the company’s balance sheet by increasing it.
Taxable dividends that are received from another corporation do not lead to an increase in the capital dividends account, as they are subject to tax and are accounted for differently. Net taxable income is part of the corporation's overall income that is subject to tax, but it does not directly impact the capital dividends account. Lastly, the receipt of stock dividends would change the composition of the investment portfolio but would not affect the capital dividends account.