Deck 13: Corporations: Effects on Retained Earnings and the Income Statement

Question 1

On March 1, 2013, Parkinson Company originally issued 10,000 shares of common stock at $4.00 per share. The stock had a par value of $0.01 per share. On March 1, 2012, Parkinson distributed a 12% stock dividend; the market price at that time had dropped to $3.75 per share. Parkinson must record a loss of $300.

Answer 1

False

Question 2

The declaration of a stock dividend creates a liability for the corporation.

Answer 2

False

Question 3

Stock dividends have no effect on assets or liabilities.

Answer 3

True

Question 4

On June 30, 2014, Stephans Company showed the following data on the equity section of their balance sheet:
On July 1, 2014, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, the total shareholders' equity would go down by $26,000.

Question 5

Which of the following is NOT true of stock dividends?

A)Stock dividends have no effect on assets or liabilities.
B)Stock dividends increase dividends payable and reduce cash.
C)Stock dividends affect only stockholder's equity accounts.
D)Stock dividends have no effect on total stockholders' equity.

Question 6

On June 30, 2014, Stephans Company showed the following data on the equity section of their balance sheet:
On July 1, 2014, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, the number of shares authorized would stay the same, but the number of shares issued would go up by 5%.

Question 7

Stock dividends are declared by the:

A)chief financial officer of the company.
B)board of directors of the company.
C)chief executive officer of the company.
D)stockholders of the company.

Question 8

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share. What would be the balance in the Common stock account after the issuance of a 10% stock dividend?

A)$200,000
B)$246,000
C)$220,000
D)$226,000

Question 9

Cash dividends affect only stockholders' equity accounts.

Question 10

The account to be debited when a stock dividend is declared and distributed on the same date would be:

A)Common stock.
B)Retained earnings.
C)Dividends.
D)Paid-in capital in excess of par.

Question 11

A company originally issued 10,000 shares of $5 par value common stock at $9 per share. The board of directors declares an 8% stock dividend when the market price of the stock is $10 a share. Which of the following is included in the entry to record the stock dividend?

A)Retained earnings is debited for $4,000.
B)Common stock is credited for $7,200.
C)Common stock is credited for $8,000.
D)Retained earnings is debited for $8,000.

Question 12

Stock dividends are distributed to stockholders in proportion to the number of shares each stockholder already owns.

Question 13

Qdot International originally issued common stock at a price of $20 per share. A year later, they distributed a 10% stock dividend to shareholders. At the time of the stock dividend, the share price had gone up to $24 per share. Under the rules of GAAP for stock dividends, Qdot will record neither a gain nor a loss on the stock dividend, despite the fact that the share price went up.

Question 14

A company originally issued 10,000 shares of $5 par value common stock at $7 per share. The board of directors declares a 10% stock dividend when the market price of the stock is $9 a share. Which of the following is included in the entry to record the stock dividend?

A)Retained earnings is debited for $9,000.
B)Retained earnings is credited for $9,000.
C)Retained earnings is debited for $5,000.
D)Common stock is credited for $9,000.

Question 15

Which of the following occurs when a corporation distributes a stock dividend?

A)Total liabilities increase.
B)Stockholders' equity increases.
C)Total assets decrease.
D)Stockholders' equity remains unchanged.

Question 16

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share. What would be the Total stockholders' equity after a 10% common stock dividend?

A)$656,000
B)$320,000
C)$610,000
D)$366,000

Question 17

Which of the following occurs when a corporation's board of directors distributes a 10% stock dividend?

A)Retained earnings will be credited for the new shares times the current market value of the stock.
B)Retained earnings will be debited for the new shares times the current market value of the stock.
C)Retained earnings will be debited for the new shares times the par value of the stock.
D)Retained earnings will be credited for the new shares times the par value of the stock.

Question 18

Which of the following will happen to a stockholder's percentage ownership in the stock of a corporation when the corporation declares a stock dividend?

A)The stockholder's percentage ownership decreases.
B)The stockholder's percentage ownership can increase or decrease.
C)The stockholder's percentage ownership increases.
D)The stockholder's percentage ownership stays the same.

Question 19

A corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $12.00 per share. Which of the following would be included in the entry to record a 10% stock dividend?

A)Common stock would be credited for $25,000.
B)Common stock would be debited for $25,000.
C)Paid-in capital in excess of par-common is debited for $35,000.
D)Retained earnings would be credited for $60,000.

Question 20

The entry to record a stock dividend depends on its size. Which of the following percentages is the upper limit for a stock dividend to be classified as a small stock dividend?

A)20%
B)10%
C)15%
D)25%

Question 21

On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet: On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, how much would the total stockholders' equity be?

A)$1,240,000
B)$1,500,000
C)$1,260,000
D)$1,214,000

Question 22

Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the balance sheet will show common stock with a par value of $0.67 per share.

Question 23

Landess Corporation currently has 120,000 shares outstanding of $1 par value common stock. The stock was originally issued for $12 per share. On March 15, the board of directors declares a 10% stock dividend when the stock is selling for $16 per share. Which of the following is the correct journal entry to record this transaction?

A)Debit Common stock $12,000, debit Paid-in capital $180,000 and credit Retained earnings $192,000.
B)Debit Retained earnings $192,000 and credit Common stock $192,000.
C)Debit Retained earnings $192,000, credit Common stock $12,000 and credit Paid-in capital $180,000.
D)Debit Paid-in capital $192,000 and credit Retained earnings $192,000.

Question 24

Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the market value of the stock will drop to $60 per share.

Question 25

A stock split is fundamentally the same transaction as a stock dividend.

Question 26

On December 1, 2013, Arbor Company had 20,000 shares of $1 par value common stock issued and outstanding. The next day they distributed a 50% stock dividend. The market value of the stock on that date was $9 per share. Please provide the journal entry for the transaction.

Question 27

On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet: On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new balance in the Common stock account?

A)$42,000
B)$26,000
C)$66,000
D)$246,000

Question 28

Qdot International originally issued 50,000 shares of common stock at a price of $20 per share. A year later, they distributed a 10% stock dividend to shareholders. At the time of the stock dividend, the share price had gone up to $24 per share. Which of the following statements is TRUE?

A)Qdot will record sales revenues of $120,000.
B)Qdot will record a loss of $20,000.
C)Qdot will record a gain of $20,000.
D)Qdot will record neither a gain nor a loss.

Question 29

On March 1, 2014, Parkinson Company originally issued 10,000 shares of common stock at $4.00 per share. The stock had a par value of $0.01 per share. On March 1, 2015, Parkinson distributed a 12% stock dividend; the market price at that time had dropped to $3.75 per share. Which of the following statements is TRUE?

A)Parkinson will record a loss of $300 on the transaction.
B)Parkinson will record a gain of $300 on the transaction.
C)Parkinson will record neither a gain nor a loss on the transaction.
D)Parkinson will record sales revenues of $4,500 for the stock issued.

Question 30

If a company does not have enough cash to pay out regular dividends, but still wishes to give the shareholders something that they would consider of value, the company should consider doing a stock split.

Question 31

A stock split is an increase in the number of issued and outstanding shares of stock, coupled with a proportionate reduction in the par value of the stock.

Question 32

Happy Holiday, Inc. has 100,000 shares of common stock issued and outstanding, with a par value of $0.01 per share. They distributed a 15% common stock dividend; market value is $12 per share. Please provide the journal entry to record this transaction.

Question 33

Landess Corporation currently has 120,000 shares outstanding of $1 par value common stock. The stock was originally issued for $12 per share. On March 15, the board of directors declares a 10% stock dividend when the stock is selling for $16 per share. Prepare the journal entry to record the stock dividend.

Question 34

Happy Holiday, Inc. has 100,000 shares of common stock issued and outstanding, with a par value of $0.01 per share. They distributed a 15% common stock dividend; market value is $12 per share. Which of the following is the correct journal entry to record the transaction?

A)Debit Retained earnings $180,000 and credit Paid-in capital $180,000.
B)Debit Retained earnings $180,000, credit Common stock $150 and credit Paid-in capital $179,850.
C)Debit Retained earnings $180,000 and credit Cash $180,000.
D)Debit Common stock $150, debit Paid-in capital $179,850 and credit Retained earnings $180,000.

Question 35

If a company's share price is getting so high that the company thinks it might inhibit some investors from buying stock, it should consider doing a stock split.

Question 36

On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet: On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would the new balance in Retained earnings be?

A)$916,000
B)$942,000
C)$966,000
D)$914,000

Question 37

On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet: On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new number of shares issued shown on the balance sheet?

A)26,000
B)66,000
C)42,000
D)105,000

Question 38

Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the balance sheet will show that there are 200,000 shares issued.

Question 39

On December 1, 2014, Arbor Company had 20,000 shares of $1 par value common stock issued and outstanding. The next day they distributed a 50% stock dividend. The market value of the stock on that date was $9 per share. Please provide the journal entry for the transaction. Which of the following is the correct journal entry to record this transaction?

A)Debit Retained earnings $90,000 and credit Cash $90,000.
B)Debit Retained earnings $90,000, credit Common stock $10,000 and credit Paid-in capital $80,000.
C)Debit Common stock $10,000 and credit Retained earnings $10,000.
D)Debit Retained earnings $10,000 and credit Common stock $10,000.

Question 40

On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet: On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new balance in Paid-in capital in excess of par?

A)$286,000
B)$284,000
C)$260,000
D)$234,000

Question 41

Which of the following would be included in the entry to record a 2-for-1 stock split?

A)There is no journal entry to record a stock split.
B)Common stock would be credited.
C)Retained earnings would be credited.
D)Retained earnings would be debited.

Question 42

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share. What will the total number of shares issued be after the declaration of a 10% stock dividend?

A)20,000 common shares
B)44,000 common shares
C)40,000 common shares
D)4,000 common shares

Question 43

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share. After a 2-for-1 stock split, what would the number of shares issued be?

A)40,000
B)80,000
C)60,000
D)120,000

Question 44

Which of the following occurs when a 2-for-1 stock split is declared?

A)The balance in common stock remains the same.
B)The balance in common stock is reduced to half the original amount.
C)The balance in common stock doubles.
D)The balance in paid-in capital doubles.

Question 45

On January 1, 2013, Parquet Sales issued 40,000 shares of common stock at a price of $22 per share. The stock has a par value of $1.00 per share. In mid-2014, due to dramatic increases in profits, the stock reached a market value of $90 per share. The board of directors approved a 2-for-1 stock split. After the stock split, what will the market value of the stock be?

A)$45.00 per share
B)$44.00 per share
C)$135.00 per share
D)$0.50 per share

Question 46

Apira has 2,000 shares of common stock outstanding. A stockholder has 100 shares. If Apira distributes a 20% stock dividend, how many shares of Apira will the stockholder have?

A)120
B)105
C)100
D)20

Question 47

Which of the following does NOT require a formal journal entry?

A)Cash dividend
B)Stock dividend
C)Stock split
D)Issuance of new shares

Question 48

A 3-for-1 stock split will:

A)triple the par value and drop the number of outstanding shares by one-third.
B)have no effect on the par value, but will affect the number of outstanding shares.
C)have no effect on the number of outstanding shares, but will affect par value.
D)cut the par value by one-third and triple the number of outstanding shares.

Question 49

Which of the following occurs when the board of directors declares a 2-for-1 stock split on 20,000 outstanding shares of $15 par common stock?

A)The par value of the stock remains the same.
B)The par value of the stock increases to $30 per share.
C)Outstanding shares decrease to 10,000.
D)Outstanding shares increase to 40,000.

Question 50

Which of the following is a TRUE statement?

A)Both a stock split and a stock dividend will decrease total assets.
B)Both a stock split and a stock dividend will increase total liabilities.
C)A stock split will increase total assets, but a stock dividend will not.
D)Neither a stock split nor a stock dividend will affect total assets or total liabilities.

Question 51

Which of the following is a reason why a company would do a stock split?

A)To defend against a hostile takeover
B)To generate additional sales revenues
C)To reduce the market price at which the stock is trading
D)To provide the shareholders with something of value, when the company cannot afford a cash dividend

Question 52

ABC has 45,000 shares of $10 par common stock outstanding. They offer a stock split of 4-for-1. The effect of the split will be:

A)par stays at $10; total shares go to 11,250.
B)par drops to $5; total shares stay at 45,000.
C)par drops to $2.50; total shares go to 180,000.
D)par goes to $40; total shares go to 180,000.

Question 53

On January 1, 2013, Parquet Sales issued 40,000 shares of common stock at a price of $22 per share. The stock has a par value of $1.00 per share. In mid-2014, due to dramatic increases in profits, the stock reached a market value of $90 per share. The board of directors approved a 2-for-1 stock split. After the stock split, what will the balance sheet show as the par value of common stock?

A)$2.00
B)$1.50
C)$1.00
D)$0.50

Question 54

Which of the following occurs due to a 4-for-1 stock split?

A)The par value of each share of common stock is 25% of the par value before the split.
B)The par value of each share of common stock is 200% of the par value before the split.
C)The par value of each share of common stock remains the same as before the split.
D)The par value of each share of common stock is 400% of the par value before the split.

Question 55

Which of the following statements is TRUE?

A)Both a stock dividend and a stock split increase the balance in the common stock account.
B)Both a stock dividend and a stock split reduce retained earnings.
C)Neither a stock dividend nor a stock split will result in net gains or losses.
D)A stock split increases the par value of the stock.

Question 56

On January 1, 2013, Parquet Sales issued 40,000 shares of common stock at a price of $22 per share. The stock has a par value of $1.00 per share. In mid-2014, due to dramatic increases in profits, the stock reached a market value of $90 per share. The board of directors approved a 2-for-1 stock split. After the stock split, what will the balance sheet show as the number of shares issued?

A)40,000
B)80,000
C)60,000
D)44,000

Question 57

Which of the following is a TRUE statement?

A)A stock split will increase total stockholders' equity, but a stock dividend will not.
B)Neither a stock split nor a stock dividend will increase total stockholders' equity.
C)A stock dividend will increase total stockholders' equity, but a stock split will not.
D)A stock split will decrease retained earnings, but a stock dividend will not.

Question 58

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share. Which of the following would be TRUE if the company issued a 2-for-1 stock split?

A)Retained earnings would be decreased by $460,000.
B)Common stock would be increased by $200,000.
C)Paid-in capital in excess of par would be increased by $260,000.
D)None of the account balances would change.

Question 59

Which of the following would have the same effect on the number of shares issued and outstanding as a 2-for-1 stock split?

A)A 20% stock dividend
B)A 200% stock dividend
C)A 100% stock dividend
D)A 120% stock dividend

Question 60

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share. What would the balance in Paid-in capital in excess of par be after a 2-for-1 stock split?

A)$580,000
B)$460,000
C)$380,000
D)$120,000

Question 61

Which of the following will decrease the amount of Total stockholders' equity?

A)Purchase of treasury stock
B)Stock split
C)Stock dividend
D)Repayment of bond principal

Question 62

Please refer to the following information for Peartree Company:
If Peartree purchases an additional 1,000 shares of treasury stock at $18 per share, the company will record a loss of $2 per share on the transaction.

Question 63

One of the reasons for acquiring treasury stock is to avoid a hostile takeover by an outside party.

Question 64

Which of the following actions could increase the balance in the Paid-in capital in excess of par account?

A)Cash dividend
B)Stock split
C)Stock dividend
D)Purchase of treasury stock

Question 65

Treasury stock is a corporation's own stock that it has issued and later reacquired.

Question 66

Which of the following will decrease the balance in Retained earnings?

A)Cash dividend
B)Stock split
C)Purchase of long-term assets
D)Purchase of treasury stock

Question 67

Please refer to the following information for Petra Sales Company:
If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, the total equity of the company will go down by $70,000.

Question 68

Please refer to the following information for Petra Sales Company:
If Petra Sales sells 10,000 shares of treasury stock at $14 per share, the company will record a gain on the sale of treasury stock of $20,000.

Question 69

On July 31, 2013, the Archer Company reported the following information in the equity section of their balance sheet:
Assume that Archer carries out a 2-for-1 stock split. Please prepare a similar equity section showing the effects of the stock split.

Question 70

Which of the following will decrease the amount of Total stockholders' equity?

A)Cash dividend
B)Stock split
C)Stock dividend
D)Repayment of bond principal

Question 71

Please refer to the following information for Peartree Company:
If Peartree purchases an additional 1,000 shares of treasury stock at $18 per share, the total equity of the company will go up by $18,000.

Question 72

Which of the following will decrease the balance in Retained earnings?

A)Repayment of bond principal
B)Stock split
C)Stock dividend
D)Purchase of treasury stock

Question 73

Please refer to the following information for Peartree Company:
If Peartree resold 1,000 shares of treasury stock for $24 per share, the company would record a gain on sale of treasury stock for $4,000.

Question 74

On July 31, 2013, the Archer Company reported the following information in the equity section of their balance sheet:
Assume that Archer carries out a 4-for-1 stock split. Please prepare a similar equity section showing the effects of the stock split. (Please round all numbers to the nearest cent.)

Question 75

Please refer to the following information for Peartree Company:
If Peartree resold 1,000 shares of treasury stock for $24 per share, the total equity of the company would remain unchanged.

Question 76

Please refer to the following information for Petra Sales Company:
If Petra Sales sells 10,000 shares of treasury stock at $14 per share, the number of shares outstanding will go down by 10,000.

Question 77

The purchase of treasury stock requires a credit to the Common stock account.

Question 78

On July 31, 2013, the Archer Company reported the following information in the equity section of their balance sheet:
Assume that Archer carries out a 3-for-1 stock split. Please prepare a similar equity section showing the effects of the stock split. (Please round all numbers to the nearest cent.)

Question 79

A corporation must record a gain on sale for the sale of treasury stock at an amount greater than its purchase price.

Question 80

Which of the following actions will increase the balance in the Common stock account?

A)Cash dividend
B)Stock split
C)Stock dividend
D)Purchase of treasury stock