Deck 12: Statement of Cash Flows

Question 1

What is the difference between cumulative and non-cumulative preferred shares?

A) Cumulative preferred share's right to receive dividends is forfeited in any year that dividends are not declared. However, noncumulative preferred shares' undeclared dividends accumulate each year until paid.
B) Cumulative does not receive dividends but noncumulative does.
C) They both receive dividends in arrears.
D) Cumulative preferred shares' undeclared dividends accumulate each year until paid, while non-cumulative preferred shares' right to receive dividends is forfeited in any year that dividends are not declared.

Answer 1

D

Question 2

Which of the following is eligible for dividends?

A) The number of shares issued.
B) The number of shares outstanding.
C) The number of shares of authorized.
D) The number of treasury shares.

Answer 2

B

Question 3

Dividends in arrears on cumulative preferred shares

A) are considered to be a current liability.
B) only occur when preferred dividends have been declared.
C) should be disclosed in the notes to the financial statements.
D) are considered to be a non-current liability.

Answer 3

C

Question 4

A primary advantage of a general partnership, compared with a corporation, does not include which of the following?

A) Ease of formation.
B) No income tax on the business itself.
C) Complete control by the partners.
D) Limited liability for the owners.

Question 5

The Basket Corporation has the following classes of shares: Preferred shares, $40, 1,000 shares issued and outstanding, non-cumulative. Common shares, 100,000 shares issued, 50,000 shares outstanding.
In 20A, Basket Corporation was incorporated. It paid no dividends in its first year of existence. In 20B, the board of directors of Basket declared a total dividend of $180,000 to be paid to the holders of preferred and common shares. What was the amount of the dividend paid in 20B on each common share?

A) $2.80
B) $2.00
C) $3.60
D) $1.80

Question 6

Towson Inc. had 300,000 common shares before a stock split occurred and 600,000 shares after the stock split. The stock split was

A) 1 for 4.
B) 2 for 1.
C) 4 for 1.
D) 2 for 4.

Question 7

A stock dividend results in

A) the same ownership interest.
B) increased total assets.
C) greater ownership interest.
D) less ownership interest.

Question 8

Which of the following describes how comprehensive income should be reported?

A) May be reported in a separate statement, in a combined statement of earnings and comprehensive income, or within a statement of shareholders' equity.
B) Should not be reported in the financial statements but should only be disclosed in the footnotes.
C) Must be reported in a separate statement, as part of a complete set of financial statements.
D) May be reported in a combined statement of earnings and comprehensive income or disclosed within a statement of shareholders' equity; separate statements of comprehensive income are not permitted.

Question 9

Which of the following statements is false?

A) A share dividend has no impact on cash.
B) Issuance of preferred shares would increase cash from financing activities.
C) Repurchases of shares at prices lower than the average issue price result in profit for the issuing company because they are capital transactions, not operating transactions.
D) Repurchase of shares (treasury shares) and payment of cash dividends reduce cash flow from financing activities.

Question 10

Wide World Corporation issued a 3-for-2 stock split (i.e., three new shares in exchange for each two old shares turned in) of its common shares which had a market value of $100 before the split. What dollar amount of retained earnings should be transferred to the common share account?

A) Half of the previous total amount in the common share account(s).
B) Market value before the split.
C) Market value after the split.
D) None should be transferred.

Question 11

Which of the following statements about a 2 for 1 stock split is not true?

A) A shareholder with 200 shares before the split owns 400 shares after the split.
B) Legal capital per share is reduced to half of what it was before the split.
C) Total share capital increases.
D) The market value of the share will probably decrease.

Question 12

Which of the following statements is false?

A) Corporations do not limit the liability of its owners.
B) Some corporations are created by application to a specific provincial government.
C) Some corporations are created by application to the federal government.
D) Most small shareholders who do not attend the corporation's annual meeting, can cast their vote by proxy card.

Question 13

The declaration of a stock dividend will

A) change the total of shareholders' equity.
B) increase total liabilities.
C) increase total assets.
D) increase share capital.

Question 14

At January 1, 20D, Clare Corporation had outstanding capital shares as shown below. During December, 20D, it declared and paid cash dividends of $48,000 to the preferred shareholders. (1) Common shares--100,000 shares outstanding
(2) Preferred shares--20,000 shares outstanding, $0.80 cumulative. The shares were issue at a price of $15 per share.
How many years were the preferred dividends in arrears?

A) Four years.
B) Two years.
C) Three years.
D) One year.

Question 15

Which one of the following events would not require a journal entry on a corporation's books?

A) 2% stock dividend
B) 100% stock dividend
C) $1 per share cash dividend
D) 2 for 1 stock split

Question 16

Accounting entries associated with a cash dividend usually are made on which of the following dates?

A) Record date and payment date.
B) Payment date only.
C) Declaration date and payment date.
D) Declaration date and record date.

Question 17

Corporations generally issue stock dividends in order to

A) increase the market price per share.
B) decrease the amount of capital in the corporation.
C) exceed shareholders' dividend expectations.
D) increase the marketability of the shares.

Question 18

Which of the following statements about stock option plans is false?

A) Stock options usually have a grant price equal to the market price of the share when the options are first offered to the executives.
B) The holder of a stock option has an interest in a company's performance but not in the same manner as a shareholder.
C) Offering excessive stock options to a company's managers reduces the likelihood they will not always act in the best interest of the investors.
D) Stock option plans are often a major part of an executive's compensation plan.

Question 19

The authorized shares of a corporation

A) only reflects the initial capital needs of the company.
B) is indicated in its by-laws.
C) must be recorded in a formal accounting entry.
D) is indicated in its charter.

Question 20

Cosby Inc. has 10,000, $5, cumulative preferred shares at December 31, 2014. If the board of directors declares a $40,000 annual dividend in 2014,

A) the company still has to pay the preferred shareholders $50,000, regardless of what amount was declared.
B) the company will still owe the preferred shareholders $10,000 and should record a dividend payable in this amount.
C) the company will owe the preferred shareholders nothing further.
D) the $10,000 will be disclosed as dividends in arrears in the notes to the financial statements.

Question 21

The effect of a stock dividend is to

A) change the composition of shareholders' equity.
B) decrease total assets and total liabilities.
C) decrease total assets and shareholders' equity.
D) increase the book value per share of common shares.

Question 22

The per share amount normally assigned by the board of directors to a stock dividend is

A) the fair value at the distribution date.
B) the fair value at the declaration date.
C) the average price paid by shareholders on total shares issued.
D) zero.

Question 23

Albert Company reported the following statement of financial position amounts at December 31, 20B: What was the total amount of retained earnings on December 31, 20B?

A) $20,000
B) $50,000
C) $40,000
D) $30,000

Question 24

A stock split will

A) have no effect on retained earnings.
B) increase the total assets.
C) decrease the number of shares.
D) increase total share capital.

Question 25

The date on which a cash dividend becomes a binding legal obligation is on the

A) date of record.
B) last day of the fiscal year end.
C) payment date.
D) declaration date.

Question 26

Bateman Company reported total shareholders' equity of $58,000 on its statement of financial position dated December 31, 20B. During 20B, it reported a profit of $4,000, declared and paid a cash dividend of $2,000, and issued additional shares of $20,000. What was total shareholders' equity at January 1, 20B?

A) $36,000
B) $34,000
C) $38,000
D) $16,000

Question 27

Which of the following statements about shares issued in exchange for assets is true?

A) They are disclosed in a note to the statement of cash flows.
B) They are classified as investment activities.
C) They are classified as operating activities.
D) They impact cash flows.

Question 28

Which one of the following is not a basic right of an owner of common share?

A) Sharing in the responsibility of setting next year's budget.
B) Sharing in the distribution of assets of the corporation at liquidation.
C) Participation in the corporation by voting in shareholder meetings.
D) Participation in the profits of the corporation through dividends declared by the board of directors.

Question 29

Which of the following is true with regard to a stock dividend?

A) It results in a transfer of retained earnings to contributed capital.
B) It does not require a journal entry.
C) It is accounted for in exactly the same manner as a stock split.
D) It increases the number of shares outstanding and involves a pro rata reduction in the par value per share.

Question 30

Which of the following is a major point of difference between accounting for a corporation versus accounting for a partnership?

A) Recording withdrawals of the owners.
B) Recording sales revenue.
C) Recording rent expense.
D) Recording office supplies used.

Question 31

Miter Corporation had a credit balance of $5,450,000 in its retained earnings account as of January 1, 2014. During the year Miter paid $250,000 in dividends, reported net earnings of $560,000 and comprehensive income of $750,000. The December 31 balance of retained earnings is:

A) $6,450,000
B) $5,760,000
C) $5,950,000
D) $6,200,000

Question 32

Which of the following is false?

A) The lower the dividend yield, the less a company has distributed to investors as an immediate return.
B) A low dividend yield is usually indicative of a growing company.
C) The dividend yield ratio is a measure of the immediate return investors are receiving from dividends stated as a percentage of market price.
D) Almost all investors want an immediate return on their investment through dividend distributions.

Question 33

Which of the following are the typical rights afforded to preferred shareholders?

A) A preferential right to receive dividend and a preference to receive the liquidation value of assets over common stock holders.
B) A preference to receive dividends when declared by the board of directors after common shareholders receive their dividends.
C) A preference to receive the liquidation value of the assets as stated in the share contract after common shareholders receive their share.
D) The right to vote on major corporate issues including electing the board of directors.

Question 34

Which of the following statements is true?

A) Preferred shares have a volatile market value therefore, they are a more risky investment than common shares.
B) Common shares have a dividend rate fixed by the share contract.
C) Corporations are not always considered to be a separate legal entity.
D) Transfer of ownership is easy with a corporation.

Question 35

A stock split will

A) have effect on retained earnings.
B) increase the number of shares.
C) increase total share capital.
D) increase the total assets.

Question 36

With respect to preferred shares, select the statement that is correct.

A) They always provide for a fixed payment to be made to the shareholders even for years when no dividends have been declared.
B) They cannot exist unless there also are common shares.
C) They must have a par value.
D) They are never issued without voting privileges.

Question 37

From an investor's viewpoint, in today's litigious environment, what would be considered the most advantageous characteristic of the corporate form of organization?

A) Absolute control and management in the hands of shareholders.
B) Limited liability for shareholders.
C) Non-applicability of going concern.
D) Lack of income taxes on the business itself.

Question 38

Retained earnings are occasionally restricted

A) due to contractual loan restrictions.
B) if preferred dividends are in arrears.
C) to set aside cash for dividends.
D) to keep the legal capital associated with share capital intact.

Question 39

Yet Corporation had net earnings of $500,000. It paid $125,000 in dividends to the preferred shareholders. Yet Corporation had a weighted average of 1,500,000 common shares and 250,000 preferred shares. Yet Corporation's earnings per share was:

A) $0.25
B) $0.21
C) $0.33
D) $0.29

Question 40

Before the journal entry to record income tax and before the closing entries were recorded at the end of the accounting period (December 31, 20D), the following data were taken from the accounts of Buynow Corporation: What is the total amount of shareholders' equity that should be reported on the statement financial position dated December 31, 20D?

A) $300,000
B) $96,000
C) $304,000
D) $128,000

Question 41

On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?

A) Date of declaration.
B) No liability is associated with a share dividend.
C) Date of payment.
D) Date of record.

Question 42

Dunbar Inc. has 10,000 $2, non-cumulative preferred shares and 150,000 common shares issued at December 31, 2012. What is the annual total dividend on the preferred shares?

A) $300,000
B) $150,000
C) $10,000
D) $20,000

Question 43

All of the following are normally found in a corporation's shareholders' equity section except

A) common shares.
B) dividends in arrears.
C) retained earnings.
D) share capital.

Question 44

Slow, Inc., reported the following asset and liability balances at the ends of 20A and 20B: During 20B, cash dividends of $5,000 were declared and paid. Additional shares were issued for $15,000. What was the profit (or loss) for 20B?

A) $45,000
B) $30,000
C) $35,000
D) $40,000

Question 45

Assume the following shares outstanding: (1) Preferred shares, $3, cumulative, 1,000 shares with dividends in arrears 3 years, for 20A, 20B, and 20C.
(2) Common shares, 2,000 shares.
Total dividends declared in 20D were $30,000. What is the total amount of dividends to which common shareholders are entitled?

A) $27,000
B) $21,000
C) $30,000
D) $18,000

Question 46

Which of the following accounts would appear in the general ledger of a partnership?

A) Dividends paid account.
B) Retained earnings account.
C) Common share accounts.
D) Drawings accounts.

Question 47

On December 15, 20B, the board of directors of Home Corporation declared a cash dividend, payable on January 8, 20C, of $2 per share on the 100,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 20B, Home Corporation should do which of the following?

A) Decrease retained earnings $200,000 and increase contributed capital $200,000.
B) Decrease cash $200,000 and decrease retained earnings $200,000.
C) Decrease retained earnings $200,000 and increase liabilities $200,000.
D) Make no journal entry because the event had no effect on the corporation's financial position until 20C.

Question 48

A shareholder who receives a stock dividend would

A) expect the market price per share to increase.
B) expect retained earnings to increase.
C) own more shares.
D) expect the legal capital of the shares to change.

Question 49

The statement of financial position of Warner Company showed the following data about its common shares: authorized shares, 100,000; outstanding shares, 55,000; and issued shares 60,000. What was the number of treasury shares?

A) 5,000
B) 40,000
C) 30,000
D) 45,000

Question 50

Igor Corp declared a two-for-one stock split. Tina Sother owned 500 shares of Igor that were trading for $20 each before the split. Which of the following is true?

A) The total market value of Tina's shares will double.
B) The market price per share will drop by 50%.
C) The market price per share will increase by 100%.
D) The number of shares Tina owns will increase by 50%.

Question 51

Slick Willie Inc. had the following shares outstanding during 20C: (1) Preferred shares, $3, cumulative, 1,000 shares with dividends in arrears for 20A and 20B.
(2) Common shares, 2,000 shares.
The total dividends declared for the current year were $21,000. What is the total amount o dividends to which the preferred shareholders are entitled?

A) $12,000
B) $6,000
C) $9,000
D) $3,000

Question 52

In 2014, P Co declared dividends totalling $.52 per common share when earnings per share were $1.31 and its market price was 40 7/16. In 2013, its dividends totalled $.46 per share, its earnings per share were $1.36 and its market price was 34 11/16. What was the computed dividend yield ratio for 2014 and 2013 respectively? (Rounded to nearest 1 decimal)

A) 1.8% and 1.9%
B) 2.1% and 2.3%
C) 1.3% and 1.3%
D) 1.7% and 1.3%

Question 53

The conversion feature on convertible preferred shares enables the shareholder to convert them to which of the following?

A) Cash.
B) Products of the company.
C) Common shares.
D) Convertible bonds.

Question 54

Dividends in arrears on cumulative preferred shares

A) never have to be paid, even if common dividends are paid.
B) should be recorded as a current liability until they are paid.
C) must be paid before common shareholders can receive a dividend.
D) enable the preferred shareholders to share equally in corporate profit with the common shareholders.

Question 55

With respect to a corporation, select the statement that is false:

A) A corporation cannot sue others or be sued.
B) Ownership rights to the corporation are transferable.
C) Its organization requires an approved charter which is governed by state law.
D) A corporation is a separate legal entity from its owners.

Question 56

At the end of 20E, the total assets of Dole Corporation were $90,000 and total liabilities were $50,000. The company has been in business five years and has earned an average profit of $4,000 per year during the five years. Total cash dividends of $8,000 were declared and paid. What was the total amount received for the shares issued by the company?

A) $46,000
B) $30,000
C) $40,000
D) $28,000

Question 57

Spot Corporation declared a cash dividend on December 30, 20A, payable on January 10, 20B. A journal entry for the dividend was not made in December 20A. What were the effects on the 20A financial statements?

A) Retained earnings and liabilities were understated.
B) Retained earnings was overstated and cash understated.
C) Retained earnings and liabilities were overstated.
D) Retained earnings was overstated and liabilities understated.

Question 58

In 2014, W Co had a dividend yield ratio of 0.3% and J.C. Co. reported a yield of 6.9%. What is the most likely reason for W Co's relatively low dividend yield in comparison to J.C. Co's ratio?

A) W Co does not have sufficient retained earnings to support declaring a dividend.
B) W Co does not generate sufficient operating profit to support declaring a dividend.
C) W Co does not generate sufficient cash from operations to be able to pay a dividend.
D) W Co is paying little in dividends because it continues to grow through expansion of store locations financed by operations.

Question 59

Which of the following is false about the dividend yield ratio?

A) A low dividend yield is neither bad nor good by itself.
B) Dividend yield ratio = Dividends per share/Market price per share
C) Measures the profit generated by each share for the shareholder based on the market price of the shares.
D) Dividend yield ratio = Market price per share/Dividends per share.

Question 60

The declaration and payment of a cash dividend does which of the following?

A) Reduces assets and retained earnings each by the amount of the dividend.
B) Reduces retained earnings and increases contributed capital by the same amount.
C) Reduces assets and increases liabilities each by the amount of the dividend.
D) Reduces retained earnings and increases liabilities by the amount of the dividend.

Question 61

The actual cost of reacquired shares is credited to the common share account.

Question 62

Which of the following represents the shares currently in the hands of investors?

A) Issued shares
B) Outstanding shares
C) Authorized shares
D) Unissued shares

Question 63

Net earnings of a corporation should be closed to retained earnings and net losses should be closed to share capital accounts.

Question 64

In general, the price of a company's shares follows the trend in its earnings and dividends.

Question 65

A major advantage that a corporation has over a proprietorship or partnership is that it allows individuals to participate in ownership by purchasing small amounts of shares.

Question 66

A very low dividend yield ratio is usually indicative of a growth-oriented corporation.

Question 67

When a corporation calls in its outstanding shares and issues two or more shares with a lower value in place of each share called in, the corporation is said to have issued a stock split.

Question 68

Which of the following statements is true?

A) Retained earnings is an asset.
B) Retained earnings represents the future dividend liability of the company.
C) Retained earnings has a debit balance for a successful corporation.
D) Retained earnings represents the profit that has been earned by the company, less any dividends declared since the first day of operations.

Question 69

Cash dividends are not a liability of the corporation until they are declared by the board of directors.

Question 70

Match the terms with the definitions below.
Terms
A. Common shares
B. Preferred shares
C. Preferred shares, noncumulative
D. Preferred shares, cumulative
E. None of the above Definitions
1. Shares that have been issued, repurchased, and are held by the corporation.
____ 2. Authorized but unissued shares.
____ 3. Shares that are limited to a specified dividend rate per year.
____ 4. The basic issue of shares; the residual equity.
____ 5. Shares on which dividends in arrears must be paid before current dividends can be paid.
____ 6. Shares with specified differences from the basic shares.

Question 71

Retained earnings is one of the major categories of contributed capital.

Question 72

Match the type of business with their characteristics below.
Type of Business
A. Corporation
B. Partnership
C. Sole proprietorship
D. Partnership and sole proprietorship Characteristic
____ 1. Uses withdrawal accounts or drawing accounts.
____ 2. Uses owner capital accounts.
____ 3. Uses retained earnings account.
____ 4. Uses a dividends declared account.
____ 5. Uses a profit ratio to allocate earnings among the owners.
____ 6. Requires a charter.
7. Issues share certificates.
____ 8. Has only one owner.
9. Has a board of directors.
___ 10. Involves more than one owner but has no charter.

Question 73

A 3 for 1 stock split will increase total shareholders' equity but reduce the legal capital per common share.

Question 74

Preferred shares provide investors certain advantages, but not dividend preferences and a preference on asset distributions in the event the corporation is liquidated.

Question 75

The dividend yield ratio

A) measures the earnings generated by each share for the shareholder based on the market price of the shares.
B) = Dividends per share/Earnings per share
C) = Market price per share/Dividends per share.
D) should be considered bad if it is low.

Question 76

A stock dividend results in a decrease in

A) retained earnings.
B) share capital.
C) current liabilities.
D) net earnings.

Question 77

A stock dividend does not affect the total amount of shareholders' equity.

Question 78

Preferred shares have contractual preference over common shares in certain areas.

Question 79

Preferred share dividends in arrears must be paid before dividends on common shares can be paid if the preferred share has a cumulative dividend preference.

Question 80

Match the items with the definitions.
Items
A. Treasury shares
B. Convertible shares
C. Preferred shares
D. Authorized shares
E. Unissued shares
F. Redeemable shares
G. Cumulative shares
Definitions
____ 1. Shares that may, at the option of the holder, be turned in for another security.
2. Shares that have been issued, repurchased, and are held by the corporation.
____ 3. Shares that have specified rights over common shares.
____ 4. Shares on which dividends in arrears must be paid prior to any current dividends.