If a firm has retained earnings of $23.9 million, a common shares account of $27
ID: 2636209 • Letter: I
Question
If a firm has retained earnings of $23.9 million, a common shares account of $275.9 million, and additional paid-in capital of $100.9 million, how would these accounts change in response to a 20 percent stock dividend? Assume market value of equity is equal to book value of equity. (Enter your answers in dollars not in millions. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.Indicate the direction of the effect by selecting "increase" , "decrease" and "no change" from the dropdown menu.)
If a firm has retained earnings of $23.9 million, a common shares account of $275.9 million, and additional paid-in capital of $100.9 million, how would these accounts change in response to a 20 percent stock dividend? Assume market value of equity is equal to book value of equity. (Enter your answers in dollars not in millions. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.Indicate the direction of the effect by selecting "increase" , "decrease" and "no change" from the dropdown menu.)
Explanation / Answer
Total market value of equity is the sum of common stock account and the additional paid in capital.
Total market value = $275.9 million + $100.9 million
= $376.8 million
If the 20% stock dividend is issued, then the common stock account will increase and retained earnings will decrease.
20% stock dividend = 20% X Market value of equity = 20% X $376.8 = $75.36 million
This $75.36 million is transfered from reained earnings account to common stock account and additional paid in capital account.
Retained earnings will decrease ($75.36 million)
Common stock account will increase
Paid in capital account will increase.
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