On January 1, Norton Inc Assume the Company Declared and Issued a 50% Stock Dividend

Multiple Choice

On January 1, Norton Inc. had total shareholders' equity as shown below when their shares were selling at $25 per share $$\begin{array} { | l | r | } \hline \text { Common shares } - 125,000 \text { shares issued and outstanding } & \$ 2,500,000 \\\hline \text { Retained earnings } & \underline { 4,000,000 } \\\hline \text { Total shareholders' equity } & \$ 6,500,000 \\\hline\end{array}$$ Assume the company declared and issued a 50% stock dividend. The effect of this dividend would:

A) Increase common shares by $1,250,000 and shares issued and outstanding by 62,500
B) Increase common shares by $1,250,000 with no change in the number of issued and outstanding shares
C) Leave total shareholders' equity unchanged but increase the number of shares issued and outstanding to 187,500
D) Reduce retained earnings by $2,000,000 and double the number of shares issued and outstanding