If a firm has retained earnings of $40 million, a common shares account of $50 million, and additional paid-in-capital of $25 million, how much would be transferred in (or out) of these accounts in response to a 40 percent stock dividend, respectively?

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A 40% stock dividend means that for every 100 shares of common stock outstanding, the firm will issue an additional 40 shares. This will increase the number of shares outstanding by 40%, from 50 million to 70 million.To account for this, the firm will need to transfer 40% of its retained earnings and additional paid-in-capital to the common shares account. This will increase the common shares account by $20 million (40% of $50 million) and decrease the retained earnings and additional paid-in-capital accounts by $16 million (40% of $40 million) and $10 million (40% of $25 million), respectively.

If a Firm Has Retained Earnings of $40 Million, a Common