What effect does a stock dividend have on the financial statements of the company that pays the dividend? The retained earnings account will increase and the balance in the Cash account will decrease by the market value of the stock "paid" as the dividend. The current market value of the stock "paid" as the dividend must be transferred from the Retained earings account to the Common stock account and the Additional paid-in capital account The amount in the Common stock account will increase, but the number of common shares outstanding will not change No entry is made on the financial statements, because stock dividends do not affect the firm's market value. The par value of the stock"paid" as the dividend must be transferred from the Retained earnings account to the Common stock account and the Additional paid-in capital account