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A stock dividend (bonus issue) increases the number of shares outstanding and:
ADecreases total equity
BPays cash to shareholders
CHas no impact on total equity
DIncreases cash balance
Answer & Solution
Correct answer: C. Has no impact on total equity
1. Bonus issue capitalises retained earnings into share capital.
2. Total equity (and shareholder wealth, theoretically) is unchanged.
3. EPS falls because share count rises; total value remains same.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §3_