Deck 14: Corporations: Dividends, Retained Earnings, and Income Reporting

Question 1

A debit balance in the Retained Earnings account is identified as a deficit.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Return on common stockholders' equity is computed by dividing net income by ending stockholders' equity.

Answer 3

False

Question 4

The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

Question 5

Prior period adjustments to income are reported in the current year's income statement.

Question 6

Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.

Question 7

Many companies prepare a stockholders' equity statement instead of presenting a detailed stockholders' equity section in the balance sheet.

Question 8

Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.

Question 9

Income tax expense usually appears as a separate section on a corporation income statement.

Question 10

Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders' equity section of the balance sheet.

Question 11

A correction in income of a prior period involves either a debit or credit to the Retained Earnings account.

Question 12

A corporation incurs income tax expense only if it pays dividends to stockholders.

Question 13

A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.

Question 14

A detailed stockholders' equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record.

Question 15

A retained earnings statement shows the same information as a corporation income statement.

Question 16

A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock.

Question 17

Retained earnings represents the amount of cash available for dividends.

Question 18

A major difference among corporations, proprietorships, and partnerships is that a corporation's income statement reports income tax expense.

Question 19

Retained earnings that are restricted are unavailable for dividends.

Question 20

Dividends may be declared and paid in cash or stock.

Question 21

Each of the following decreases retained earnings except a

A) cash dividend.
B) liquidating dividend.
C) stock dividend.
D) All of these decrease retained earnings.

Question 22

Earnings per share indicates the net income earned by each share of outstanding common stock.

Question 23

Earnings per share is reported for both preferred and common stock.

Question 24

Common Stock Dividends Distributable is classified as a(n)

A) asset account.
B) stockholders' equity account.
C) expense account.
D) liability account.

Question 25

Income tax expense and the related liability for income taxes payable are recorded when taxes are paid.

Question 26

Most companies are required to report earnings per share on the face of the income statement.

Question 27

Preferred dividends paid are added back to net income in calculating earnings per share for common stockholders.

Question 28

A dividend based on paid-in capital is termed a liquidating dividend.

Question 29

If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is

A) Common Stock Dividends Distributable.
B) Common Stock.
C) Paid-in Capital in Excess of Par.
D) Retained Earnings.

Question 30

Each of the following decreases total stockholders' equity except a

A) cash dividend.
B) liquidating dividend.
C) stock dividend.
D) All of these decrease total stockholders' equity.

Question 31

Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding.

Question 32

Earnings per share is reported only for common stock.

Question 33

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

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

Question 34

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

A) decrease total liabilities and stockholders' equity.
B) increase total expenses and total liabilities.
C) increase total assets and stockholders' equity.
D) decrease total assets and stockholders' equity.

Question 35

A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.

Question 36

Which one of the following is not necessary in order for a corporation to pay a cash dividend?

A) Adequate cash
B) Approval of stockholders
C) Declaration of dividends by the board of directors
D) Retained earnings

Question 37

Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders' equity section.

Question 38

The effect of a stock dividend is to

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

Question 39

The effect of the declaration of a cash dividend by the board of directors is to

Question 40

If a corporation declares a dividend based upon paid-in capital, it is known as a

A) scrip dividend.
B) property dividend.
C) paid dividend.
D) liquidating dividend.

Question 41

Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:

Question 42

Which of the following statements regarding the date of a cash dividend declaration is not accurate?

A) The dividend can be rescinded once it has been declared.
B) The corporation is committed to a legal, binding obligation.
C) The board of directors formally authorizes the cash dividend.
D) A liability account must be increased.

Question 43

Manner, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2010. There were no dividends declared in 2009. The board of directors declares and pays a $45,000 dividend in 2010. What is the amount of dividends received by the common stockholders in 2010?

A) $0
B) $25,000
C) $45,000
D) $20,000

Question 44

If a stockholder receives a dividend that reduces retained earnings by the fair market value of the stock, the stockholder has received a

A) large stock dividend.
B) cash dividend.
C) contingent dividend.
D) small stock dividend.

Question 45

Which of the following is not a significant date with respect to dividends?

A) The declaration date
B) The incorporation date
C) The record date
D) The payment date

Question 46

Lopez, Inc. has 2,000 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2009, and December 31, 2010. The board of directors declared and paid a $3,000 dividend in 2009. In 2010, $15,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2010?

Question 47

On the dividend record date,

A) a dividend becomes a current obligation.
B) no entry is required.
C) an entry may be required if it is a stock dividend.
D) Dividends Payable is debited.

Question 48

Which of the following statements about dividends is not accurate?

A) Many companies declare and pay cash quarterly dividends.
B) Low dividends may mean high stock returns.
C) The board of directors is obligated to declare dividends.
D) A legal dividend may not be a feasible one.

Question 49

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

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

Question 50

The declaration and distribution of a stock dividend will

A) increase total stockholders' equity.
B) increase total assets.
C) decrease total assets.
D) have no effect on total assets.

Question 51

The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to

A) decrease current liabilities and stockholders' equity.
B) increase total assets and stockholders' equity.
C) increase current liabilities and stockholders' equity.
D) decrease stockholders' equity and total assets.

Question 52

Norton, Inc. has 10,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2010, and December 31, 2011. The board of directors declared and paid a $50,000 dividend in 2010. In 2011, $110,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2011?

Question 53

A corporation is not committed to a legal obligation when it declares

A) a cash dividend.
B) either a cash dividend or a stock dividend.
C) a stock dividend.
D) a distribution date.

Question 54

ABC, Inc. has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2010. What is the annual dividend on the preferred stock?

A) $50 per share
B) $5,000 in total
C) $500 in total
D) $.50 per share

Question 55

Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits Stock Dividends

A) Increase No change
B) No change Decrease
C) Decrease Decrease
D) No change No change

Question 56

Dividends Payable is classified as a

A) long-term liability.
B) contra stockholders' equity account to Retained Earnings.
C) current liability.
D) stockholders' equity account.

Question 57

Agler, Inc. has 10,000 shares of 7%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2010. If the board of directors declares a $60,000 dividend, the

A) preferred shareholders will receive 1/10th of what the common shareholders will receive.
B) preferred shareholders will receive the entire $60,000.
C) $60,000 will be held as restricted retained earnings and paid out at some future date.
D) preferred shareholders will receive $30,000 and the common shareholders will receive $30,000.

Question 58

Regular dividends are declared out of

A) Paid-in Capital in Excess of Par Value.
B) Treasury Stock.
C) Common Stock.
D) Retained Earnings.

Question 59

Of the various dividends types, the two most common types in practice are

A) cash and large stock.
B) cash and property.
C) cash and small stock.
D) property and small stock.

Question 60

Dividends are predominantly paid in

A) earnings.
B) property.
C) cash.
D) stock.

Question 61

A stock split

A) may occur in the absence of retained earnings.
B) will increase total paid-in capital.
C) will increase the total par value of the stock.
D) will have no effect on the par value per share of stock.

Question 62

A small stock dividend is defined as

A) less than 30% but greater than 25% of the corporation's issued stock.
B) between 50% and 100% of the corporation's issued stock.
C) more than 30% of the corporation's issued stock.
D) less than 20-25% of the corporation's issued stock.

Question 63

The board of directors must assign a per share value to a stock dividend declared that is

A) greater than the par or stated value.
B) less than the par or stated value.
C) equal to the par or stated value.
D) at least equal to the par or stated value.

Question 64

On January 1, Castagno Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 15% stock dividend. Market value of the stock was $15/share. As a result of this event,

A) Castagno's Paid-in Capital in Excess of Par Value account increased $600,000.
B) Castagno's total stockholders' equity was unaffected.
C) Castagno's Retained Earnings account decreased $1,800,000.
D) All of the above.

Question 65

Sun Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2010. What is the annual dividend on the preferred stock?

A) $50 per share
B) $25,000 in total
C) $5,000 in total
D) $0.50 per share

Question 66

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

A) the market value of the stock on the date of declaration.
B) the average price paid by stockholders on outstanding shares.
C) the par or stated value of the stock.
D) zero.

Question 67

Corporations generally issue stock dividends in order to

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

Question 68

Anders, Inc., has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2011. There were no dividends declared in 2009. The board of directors declares and pays a $45,000 dividend in 2010 and in 2011. What is the amount of dividends received by the common stockholders in 2011?

A) $15,000
B) $25,000
C) $45,000
D) $0

Question 69

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

A) the market value of the stock on the date of declaration.
B) the average price paid by stockholders on outstanding shares.
C) the par or stated value of the stock.
D) zero.

Question 70

When stock dividends are distributed,

A) Common Stock Dividends Distributable is decreased.
B) Retained Earnings is decreased.
C) Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend.
D) no entry is necessary if it is a large stock dividend.

Question 71

Archer, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2010. There were no dividends declared in 2009. The board of directors declares and pays a $120,000 dividend in 2010. What is the amount of dividends received by the common stockholders in 2010?

A) $0
B) $50,000
C) $20,000
D) $70,000

Question 72

Allstate, Inc., has 10,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2010. If the board of directors declares a $200,000 dividend, the

A) preferred stockholders will receive 1/10^th of what the common stockholders will receive.
B) preferred stockholders will receive the entire $200,000.
C) $60,000 will be held as restricted retained earnings and paid out at some future date.
D) preferred stockholders will receive $60,000 and the common stockholders will receive $140,000.

Question 73

On January 1, Edmiston Corporation had 1,000,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 20% stock dividend. Market value of the stock was $15/share. As a result of this event,

A) Edmiston's Paid-in Capital in Excess of Par Value account increased $1,000,000.
B) Edmiston's total stockholders' equity was unaffected.
C) Edmiston's Retained Earnings account decreased $3,000,000. d All of the above.

Question 74

Identify the effect the declaration and distribution of a stock dividend has on the par value per share.
Par Value per Share

A) Increase
B) Decrease
C) Increase or decrease
D) No effect

Question 75

The declaration of a stock dividend will

A) increase paid-in capital.
B) change the total of stockholders' equity.
C) increase total liabilities.
D) increase total assets.

Question 76

Outstanding stock of the Colt Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 5%, $10 par noncumulative preferred stock. In 2009, Colt declared and paid dividends of $2,000. In 2010, Colt declared and paid dividends of $6,000. How much of the 2010 dividend was distributed to preferred shareholders?

A) $3,000
B) $3,500
C) $2,500
D) None of the above

Question 77

Which of the following show the proper effect of a stock split and a stock dividend?

Question 78

Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2010, and December 31, 2009. The board of directors declared and paid a $5,000 dividend in 2009. In 2010, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2010?

A) $17,000
B) $12,000
C) $7,000
D) $6,000

Question 79

A stockholder who receives a stock dividend would

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

Question 80

Outstanding stock of the Abel Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 5%, $10 par noncumulative preferred stock. In 2009, Abel declared and paid dividends of $4,000. In 2010, Abel declared and paid dividends of $12,000. How much of the 2010 dividend was distributed to preferred shareholders?

A) $7,000
B) $4,000
C) $5,000
D) None of the above