Question 1

The balance of the income summary account of a corporation is transferred to which of the following accounts?

Accepted Answer

The balance of the income summary account is the net income or net loss for the period. This amount is transferred to the retained earnings account, which is a cumulative account that tracks the profits or losses of the corporation from the time it was established. Therefore, option D is the correct answer.

Question 2

The board of directors declared a $2 per share cash dividend on common stock and the corporation had 5,000 shares authorized and 4,000 shares outstanding. The entry required to record the declaration of dividends would be

Accepted Answer

The declaration of dividends involves debiting Cash Dividends (or Retained Earnings) and crediting Common Dividends Payable to record the liability.

Question 3

Estimated quarterly income tax payments are due on each of the following dates EXCEPT

Accepted Answer

Estimated quarterly income tax payments are typically due on April 15, June 15, September 15, and January 15 of the following year. March 15 is not one of these dates.

Question 4

An exchange of one share of an old issue of stock for a multiple number of shares of a new issue of stock with reduced par or stated value is known as a

Accepted Answer

This is describing a stock split which involves exchanging one share of an old issue of stock for multiple shares of a new issue with reduced par or stated value. A property dividend involves distributing assets rather than shares of stocks, a stock dividend involves issuing additional shares of the same stock to existing shareholders, and a liquidating dividend involves the company distributing assets upon liquidation or dissolution.

Question 5

A retained earnings appropriation is a restriction of retained earnings by

Accepted Answer

Retained earnings appropriations are typically made by the board of directors, as they are responsible for making decisions related to the company's financial strategy and allocation of resources. While stockholders may have some input on financial decisions through voting on proposals, they do not typically make specific appropriations of retained earnings. Senior management may make recommendations to the board regarding appropriations, but the final decision rests with the board. Accountants may provide financial advice and guidance, but they do not make decisions related to retained earnings appropriations.

Question 6

Most corporations must estimate their annual income taxes and make

Accepted Answer

Most corporations must estimate their annual income taxes and make quarterly payments. This is required by the Internal Revenue Service (IRS) in order to ensure that the government receives regular payments of taxes throughout the year, rather than waiting until the end of the year to pay in one lump sum. Quarterly payments are due on the 15th of April, June, September, and December.

Question 7

Typically, the only credit to the retained earnings account for a corporation is

Accepted Answer

Retained earnings is the portion of a corporation's profits that are not distributed as dividends to shareholders but are instead reinvested in the business or kept in reserve for future use. The only credit to the retained earnings account for a corporation is the net income of the period, the amount by which a company's total revenue exceeds its total expenses. This is because retained earnings represent the accumulated earnings of the company since its inception, and any net income generated in a given period is added to this total. Options A, C, and D are incorrect as they do not represent credits to the retained earnings account.

Question 8

An entry to appropriate a portion of retained earnings to finance a future plant expansion would include a credit to

Accepted Answer

Appropriated Retained Earnings is the portion of retained earnings that has been designated for future use, such as financing a plant expansion. The entry would involve a transfer from unappropriated retained earnings to appropriated retained earnings, and would not involve cash or paid-in capital.

Question 9

Which of the following would not be shown on the statement of retained earnings?

Accepted Answer

The purchase of treasury stock is not shown on the statement of retained earnings; it is reflected in the equity section of the balance sheet.

Question 10

The owner of 100 shares of stock of a corporation with 2,000 shares of stock outstanding has a 5% interest in the total stockholders' equity. If a 20% stock dividend is declared and distributed, that stockholder would own which of the following number of shares?

Accepted Answer

Before the stock dividend, the number of outstanding shares is 2,000. The stockholder owns 100 shares, which is 5% of the total outstanding shares. Therefore, the total equity is calculated as:
100/0.05 = 2,000
After the stock dividend, the number of outstanding shares increased by 20%:
2,000 x 1.20 = 2,400
The stockholder still owns 5% of the total equity, which is:
2,400 x 0.05 = 120
Therefore, the stockholder would own 120 shares after the stock dividend is declared and distributed.

Question 11

A dividend is declared by the

Accepted Answer

Dividends are declared by the board of directors. They are responsible for determining how much of the company's profits will be distributed to shareholders as dividends. Shareholders do not have the authority to declare dividends on their own. The president of the corporation and CFO may be involved in the decision-making process, but ultimately it is the responsibility of the board of directors.

Question 12

The journal entry made on the date of declaration of a cash dividend to common stockholders includes

Accepted Answer

When a cash dividend is declared, the company records a debit to Cash Dividends (an expense account) and a credit to Common Dividends Payable (a liability account) to reflect the obligation to pay the dividend.

Question 13

If a corporation issues additional shares of its own stock to the stockholders on a proportional ownership basis, these are known as a

Accepted Answer

Issuing additional shares of its own stock to the stockholders on a proportional ownership basis is called a stock dividend. A cash dividend is a payment of cash to stockholders, while a dividend payable is the liability of the corporation for a declared but unpaid dividend. A liquidating dividend is a distribution of all or part of a corporation's assets to its stockholders.

Question 14

All of the following statements concerning Retained Earnings are true EXCEPT

Accepted Answer

Distributing stock dividends will not decrease Retained Earnings as they are a distribution of additional shares rather than cash. All other statements are true.

Question 15

After making four quarterly estimated payments of $3,500, a corporation's actual income tax liability for the year is $17,200. The year-end adjusting entry would require

Accepted Answer

The adjusting entry is necessary to account for the difference between the estimated tax payments made throughout the year and the actual tax liability. Since the actual tax liability is higher than the estimated payments, the adjusting entry will increase the expense recorded for income taxes. Therefore, a debit to Income Tax Expense for $3,200 is the correct choice.

Question 16

When a dividend is paid in cash, it is known as a

Accepted Answer

When a dividend is paid in cash, it is known as a cash dividend. A liquidating dividend is when a company distributes all of its assets to shareholders and dissolves. A dividend payable refers to a dividend that has been announced but hasn't been paid yet. A property dividend is when a company distributes assets other than cash, such as stocks or bonds, to shareholders.

Question 17

A corporation may issue a stock dividend for which of the following reasons?

Accepted Answer

A corporation may issue a stock dividend if it is short of cash and unable to pay a cash dividend, as it allows the company to reward shareholders without using cash reserves.

Question 18

Capital resulting from the retention of earnings should be entered in an account with an appropriate title such as

Accepted Answer

Retained Earnings is the appropriate title for the account that represents the capital resulting from the retention of earnings. This account keeps track of the company's profits that are not distributed as dividends to its shareholders but are kept in the business to be reinvested or used for other purposes such as debt reduction or acquisition of assets. Appropriated Retained Earnings is also a possible option if the company designates a portion of its retained earnings for a specific purpose or project. However, it is not a general title for the account and is only used in specific circumstances. Earnings Retained in the Business and Capital Stock are not appropriate titles for this account since they do not accurately reflect the nature of the capital resulting from the retention of earnings.

Question 19

The board of directors declared a $2 per share cash dividend on common stock and the corporation had 5,000 shares authorized and 4,000 shares outstanding and make a journal entry. The journal entry for the dividend payment would be

Accepted Answer

The answer of The board of directors declared a $2...

Question 20

In a corporation, the capital resulting from the retention of earnings is entered in the

Accepted Answer

Retained earnings account is used to track the portion of a corporation's earnings that are kept for future use instead of being distributed as dividends to shareholders. This account reflects the accumulated profits over the life of the corporation.

Quiz 21: Corporations: Earnings, Taxes, Distributions, and the Retained Earnings Statement