If a firm has retained earnings of $3.9 million, a common shares account of $5.9

Question

If a firm has retained earnings of $3.9 million, a common shares account of $5.9 million, and additional paid-in capital of $11.8 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.)

Retained earnings $

Common Stock$

Additional paid-in capital$

Explanation / Answer

Retained Earnings - Decreases by 10% of $5.9 Million= $ 590,000

Common Stock - Increases by 10%*0.01 * 5.9 M = $ 5,900 (if the par value of Common Stock is 1 cent)

Additional Paid in capital = Increases by (590,000-5900) = 584,100

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