The Earth Shoe Company, Whose Stock Has a Market Value

question 112

Multiple Choice

The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet: $\begin{array}{lr}\text { Common stock ( \( \$ 1 \) par, \( 1,000,000 \) shares) }&\$ 1,000,000\\\text {Paid in excess }&\$ 14,000,000\\\text { Retained earnings}&\$ 52,000,000\\\text {Total Common stockholders' equity }&\$ 67,000,000\\\end{array}$
If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?

• A) $1,000,000
• B) $51,000,000
• C) $14,950,000
• D) None of the above

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Definitions:

Opportunity Costs

The expense incurred from not selecting the next most favorable choice when a decision is taken or preferring one alternative over another.

Efficient

The characteristic of a resource allocation that maximizes the total surplus received by all members of society.

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, technology, etc.), assuming efficient use of resources.

Technological Advance

The introduction and application of new technologies and methods that improve productivity and efficiency.