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

question 27

Multiple Choice

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?

• A)Retained earnings will decrease by $1,200,000.
• B)Common shares will increase by $300,000.
• C)Additional paid-in-capital will increase by $900,000.
• D)All of these statements are correct.

---

Definitions:

Two-factor Theory of Emotion

A psychological model suggesting that emotions are composed of two factors: physical arousal and a cognitive label applied to explain the arousal.

Cognitive Labeling

The process by which individuals interpret their emotions based on the context of their situation.

Self-perception

The process through which individuals interpret their own behavior and form attitudes and beliefs about themselves.

Arousal

A physiological and psychological state of being awake or reactive to stimuli.