Detailed Answer
Answer (D) is correct. The entry to record the declaration of a small stock dividend (one less than 20% to 25% of the shares outstanding) involves a debit to one stockholders’ equity account (retained earnings) and a credit to one or more other stockholders’ equity accounts (common stock dividend distributable and paid-in capital in excess of par) for the fair value of the stock. Consequently, the declaration has no effect on total stockholders’ equity because the entry merely entails a transfer from retained earnings to permanent capital. The subsequent distribution of a stock dividend requires only a debit to common stock dividend distributable and a credit to common stock. Because both are stockholders’ equity accounts, the distribution has no effect on total stockholders’ equity.