A firm has retained earnings of $11 million,a common shares account of $2 million,and additional paid-in-capital of $6 million,and the firm just paid a 15 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.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

- To calculate the changes in the accounts due to the stock dividend, we need to find the value of the dividend and share it between the common shares account and additional paid-in-capital account.
- The value of the stock dividend can be found by multiplying the number of outstanding shares by the dividend percentage: ($2 million / par value per share) * 0.15 = $300,000
- The $300,000 will be split between the common shares and additional paid-in-capital accounts, reflecting the fair market value of each account.
- Therefore, the common shares account will increase by $150,000 (50% of $300,000) and the additional paid-in-capital account will increase by $450,000 (50% of $300,000).
- Retained earnings will decrease by the total value of the dividend, which is $300,000. 
- Therefore, all of the statements are correct.

A Firm Has Retained Earnings of $11 Million,a Common Shares