Mic Dundee, President of Aussie Steaks Inc., is contemplating issuing a stock dividend that would lower the company’s share price to either the \($24\) or to the \($25\) per share range. Aussie Steaks’ share price is currently trading at \($30\) per share. The shareholders’ equity section of Aussie Steaks’ balance sheet at year-end is as follows:

For the past several years, Aussie Steaks has paid annual cash dividends of \($0.08\) per share. Mic would like to maintain this level of cash dividends after the stock dividend is issued. Mic expects net income for the next few years to average \($300,000\) per year. Some members of Aussie Steaks’ board of directors want a 20 percent stock dividend; others want a 25 percent stock dividend.
Required 

1. Identify the financial effects associated with a 25 percent stock dividend.
2. Identify the financial effects associated with a 20 percent stock dividend.
3. Is there any reason why the Aussie Steaks’ shareholders would prefer a small stock dividend to a large stock dividend?
4. Should Aussie Steaks declare a 20 percent stock dividend or a 25 percent stock dividend? Why?
5. What event must have occurred if the shareholders’ equity section of Aussie Steaks’ balance sheet at January 1 of the following year was reported as shown below?

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Common stock ($1 par) Additional paid-in-capital Retained earnings Total shareholders' equity $ 500,000 2,000,000 3,100,000 $5,600,000