All American National Company earned $240,000 last year. The board of directors decided to pay out one-half of the firm's earnings to the stockholders. Before the board's decision, the firm's retained earnings were $740,000. Which of the following statements is true?
A) Each shareholder will receive more than he or she received last year.
B) The firm's retained earnings are too high.
C) The value of the firm's retained earnings is now $860,000.
D) The value of the firm's retained earnings is now $620,000.
E) The firm should be more profitable.

Question

Quizplus · Accepted Answer

The firm earned $240,000 and decided to pay out half, which is $120,000, to the stockholders. The remaining half, also $120,000, is added to the retained earnings. Therefore, the new retained earnings value is $740,000 (previous retained earnings) + $120,000 = $860,000.

All American National Company Earned $240,000 Last Year