If a firm has retained earnings of $2.9 million, a common shares account of $4.9

Question

If a firm has retained earnings of $2.9 million, a common shares account of $4.9 million, and additional paid-in capital of $9.8 million, how would these accounts change in response to a 10 percent stock dividend? Assume market value of equity is equal to book value of equity. (Enter your answers in dollars not in millions. Input all amounts as positive values. Indicate the direction of the effect by selecting "increase" , "decrease" and "no change" from the dropdown menu.)

If a firm has retained earnings of $2.9 million, a common shares account of $4.9 million, and additional paid-in capital of $9.8 million, how would these accounts change in response to a 10 percent stock dividend? Assume market value of equity is equal to book value of equity. (Enter your answers in dollars not in millions. Input all amounts as positive values. Indicate the direction of the effect by selecting "increase" , "decrease" and "no change" from the dropdown menu.)

Explanation / Answer

Step-1:

Retained earnings = 2.9million = $2,900,000

Changes in dividend = 10%

= $2,900,000 * 10% = $290,000

= Retained Earnings Decreased to = $2,610,000

Step-2:

Common stock = 4.9million = $4,900,000

= $4,900,000 * 10%

= $490,000

Common stock increased to = $5,390,000

Step-3:

Paid in capital = 9.8million = $9,800,000

= $9,800,000 * 10% = $980,000

= $10,780,000

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