Use the Following Information for Questions
on January 1

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 10% stock dividend and that the market price remained constant.The effect of this dividend would:

A) Increase common shares by $312,500
B) Increase common shares by $250,000
C) Decrease retained earnings by $250,000
D) Increase common shares by $400,000