If a firm has retained earnings of $2.6 million, a common shares account of $4.6 million,...
If a firm has retained earnings of $2.6 million, a common shares account of $4.6 million, and additional paid-in capital of $9.2 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," or "no change" from the drop-down menu.)
Reatained Earnings _____ to _____
Common Stock _______ to _______
Additional paid-in capital ________ to _______
Homework Answers
10 % Stock dividend means value of shares in the common stock and additional capital will be increased in form of dividend and the amount increased will be transferred from retaimed earnings.
Dividend is calculated as follows
Common shares = 4600000 * 10 % = $460000
Additional paid in capital = 9200000 * 10% = $920000
New balance
Common shares = 4600000 + 460000 = $5060000
Additional paid in capital = 9200000 + 920000 = $10120000
Retained earning = Balance - ( Dividend on common shares + paid in capital)
= 2600000 - ( 460000 + 920000 )
= $1220000
Retained earning 2.6 milliom to 1.22 million
Common shares 4.6 million to 5.06 million
Additinal capital 9.2 million to 10.12 million
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