Use the Following Information for Questions
on January 1

question 50

Multiple Choice

Use the following information for questions
On January 1, Canary Co. had total shareholders' equity as shown below when their shares were selling at $25 per share. $\begin{array}{ll}\text { Common shares (125,000 shares) } & \$ 2,500,000 \\\text { Retained earnings } & 4,000,000 \\\quad \text { Total shareholders' equity } & \$ 6,500,000\end{array}$
-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

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Definitions:

Net Sales

Revenue from goods or services sold minus returns, allowances, and discounts.

Return On Equity (ROE)

A measure of financial performance, calculated by dividing net income by shareholder equity, indicating how well a company uses investments to generate earnings growth.

Interest Expense

The cost incurred by an entity for borrowed funds over a period, typically noted on the income statement.

Income Taxes

Taxes imposed by the government on the income earned by individuals and businesses within its jurisdiction.