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Homework answers / question archive / 2)
2). If a firm has retained earnings of $22.9 million, a common shares account of $274.9 million, and additional paid-in capital of $99.9 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," or "no change"
Retained Earnings- __________________
Common Stock- __________________
Additional Paid in Capital- __________________
3). If a firm has retained earnings of $3.1 million, a common shares account of $5.1 million, and additional paid-in capital of $10.2 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"
Retained Earnings- __________________
Common Stock- __________________
Additional Paid in Capital- __________________
2)
Total Book Value of Equity = Retained Earnings + Common Stock+ Additional Paid in Capital
= $22.9 million + $274.9 million + $99.9 million
= $397.7 million
Since Book Value = Market Value
So,
20% Stock Sividend = $397.7 million*20% = $79.54 million
Retained Earnings will decrease by $79.54 million.
Common Stock will increase by $274.9 million * 20% = $54.98 million.
Additional paid capital will increase by (Decrease in Retained Earnings - Increase in Common Stock) = $79.54 million - $54.98 million = $24.56 million
3)
Total Book Value of Equity = Retained Earnings + Common Stock+ Additional Paid in Capital
= $3.1 million + $5.1 million + $10.2 million
= $18.40 million
Since Book Value = Market Value
So,
10% Stock Sividend = $18.40 million*10% = $1.84 million
Retained Earnings will decrease by $1.84 million.
Common Stock will increase by $5.1 million * 10% = $0.51 million.
Additional paid capital will increase by (Decrease in Retained Earnings - Increase in Common Stock) = $1.84 million - $0.51 million = $1.33 million
