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) the firm should be more profitable

b) the firms retained earnings too high

c) each shareholder will receiver more than they did last year

d) the value of the firms retained earnings is now $860,000

e) the value of the firms retained earnings is now $620,000

d) the value of the firms retained earnings is now $860,000

Explanation:

If All American National Company earned $240,000 last year, and the board of directors decided to pay out one-half of the firm's earnings to the stockholders.

That implies that dividends of $120,000 will be paid out (50% x $240,000) while the balance $120,000 will be retained in the company

Hence, if before the board's decision, the firm's retained earnings were $740,000. Then thereafter, the figure will include the $120,000 that will be retained from profits after dividend payout.

$740,000 + $120,000 = $860,000