Final answer:
A stock dividend will cause total assets to remain the same, as it involves the redistribution of equity, not the alteration of assets. It changes the shareholders' equity section by reducing retained earnings and increasing common stock and additional paid-in capital. Investors expect returns in the form of dividends or capital gains.
Step-by-step explanation:
A stock dividend will cause total assets to remain the same. When a company issues a stock dividend, it redistributes part of its equity to shareholders in the form of additional shares. Instead of receiving cash, shareholders receive a proportional number of additional shares.
The company's assets do not change because a stock dividend is essentially a reclassification of part of the company's retained earnings to common stock. However, the shareholders' equity section of the balance sheet is altered as the retained earnings decrease while the common stock and additional paid-in capital accounts increase correspondingly.
There are two main types of return a firm may provide to its investors: dividends and capital gains. A dividend is a direct payment to shareholders, while a capital gain is the increase in stock value when a financial investor buys and then sells the stock at a higher price. For example, if an investor buys a share of stock in Wal-Mart for $45 and then sells it for $60, they realize a capital gain of $15.