A firm has retained earnings of $6 million, a common shares account of $3 millio

Question

A firm has retained earnings of $6 million, a common shares account of $3 million, and additional paid-in-capital of $6 million, and the firm just paid a 10 percent stock dividend. Assume that fair market value is reflected in the relative size of both the common shares account and the additional paid-in-capital account. What are the new levels in each account? Retained earnings = $5,900,000; Common shares = $2,700,000; Additional paid-in-capital = $5,400,000 Retained earnings = $5,100,000; Common shares = $3,300,000; Additional paid-in-capital = $6,600,000 Retained earnings = $5,100,000; Common shares = $2,700,000; Additional paid-in-capital = $5,400,000 Retained earnings = $900,000; Common shares = $300,000; Additional paid-in-capital = $600,000

Explanation / Answer

Common shares = $3,300,000; Additional paid-in-capital = $6,600,000 Retained earnings = $5,100,000 ,

After 10 percent stock dividend ,

Common stock [3000000 + 3000000*0.10] = $3300000

additional paid-in-capital [6000000 + 6000000*0.10] = $6600000

  retained earnings [$6000000 - 300000 - 600000 ] = $5100000

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