Question 1

Car and Auto Sisters had retained earnings of $18,000 on the balance sheet but disclosed in the footnotes that $3,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends?

Accepted Answer

Retained earnings of $18,000 less $3,000 restricted for plant expansion and less $1,000 restricted for bond repayments leaves $14,000 available for dividends. The cash set aside for the plant expansion does not affect the calculation of available retained earnings for dividends.

Question 2

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

Accepted Answer

A stock split does not affect the total equity of the corporation, only the number of shares outstanding, so it does not require a formal journal entry. The other options would require a journal entry to record the distribution of dividends to shareholders.

Question 3

A credit balance in retained earnings represents

Accepted Answer

A credit balance in retained earnings represents a claim on the aggregate assets of the corporation. Retained earnings are part of stockholders' equity and reflect the accumulated net income of a company that has not been distributed to shareholders as dividends. It is not tied to specific assets or the amount of cash retained, nor is it exempt from stockholders' claims on total assets.

Question 4

On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 15% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a

Accepted Answer

The answer of On January 1, Sway Corporation had 60,000...

Question 5

Corporations generally issue stock dividends in order to

Accepted Answer

Stock dividends are often issued to increase the marketability of the stock by increasing the number of shares available, which can make the stock more accessible to a wider range of investors due to a lower price per share. This does not directly aim to increase the market price per share, exceed dividend expectations, or decrease the corporation's capital.

Question 6

Moore, Inc. had 250,000 shares of common stock outstanding before a stock split occurred, and 1,000,000 shares outstanding after the stock split. The stock split was

Accepted Answer

A 4-for-1 stock split means that for every share of stock held by shareholders, they will receive four new shares. So, if Moore, Inc. had 250,000 shares before the split, and each share was split into four new shares, the total number of shares outstanding would be 1,000,000 after the split (250,000 x 4). Therefore, the correct answer is D.

Question 7

Saint, Inc. declares a 15% common stock dividend when it has 30,000 shares of $10 par value common stock outstanding. If the market value of $24 per share is used, the amounts debited to Stock Dividends and credited to Paid-in Capital in Excess of Par are: Paid-in Capital in $\begin{array}{ll}&\text { Stock Dividends }&\text { Excess of Par }\
a.&\$ 45,000 & \$ 0 \
b.&\$ 108,000 & \$ 63,000 \
c.&\$ 108,000 & \$ 45,000 \
d.&\$ 45,000 & \$ 63,000
\end{array}$

Accepted Answer

The answer of Saint, Inc. declares a 15% common stock...

Question 8

Cloud Manufacturing declared a 10% stock dividend when it had 700,000 shares of $3 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to

Accepted Answer

A stock dividend involves the issuance of additional shares of stock to existing shareholders. In this case, Cloud Manufacturing declared a 10% stock dividend, which means it will issue 70,000 new shares of common stock (10% of 700,000). The par value of the common stock is $3 per share, so the total par value of the new shares is $210,000 (70,000 shares x $3 per share). However, the market price per share is $12, so the total value of the new shares is actually $840,000 (70,000 shares x $12 per share). This means that the company is issuing new shares that have a value of $840,000, but a par value of only $210,000. The difference between the total value of the new shares and their par value is $630,000, which is credited to Paid-in Capital in Excess of Par. Therefore, the entry to record the dividend declaration would include a credit to Paid-in Capital in Excess of Par for $630,000.

Question 9

A prior period adjustment that corrects income of a prior period requires that an entry be made to

Accepted Answer

A prior period adjustment is a correction of an error made in a previous period. As a result, the entry should be made to the retained earnings account, which is a part of the equity section of the balance sheet. The adjustment affects the opening balance of retained earnings in the current year's balance sheet, which would affect the net income in the current period on the income statement. Therefore, option C is the best choice.

Question 10

On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a

Accepted Answer

The answer of On January 1, Soft Corporation had 80,000...

Question 11

Restricting retained earnings for the cost of treasury stock purchased is a

Accepted Answer

Restricting retained earnings for the cost of treasury stock purchased is a legal restriction, as it is required by accounting standards and regulations.

Question 12

On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The entry to record the transaction of June 17 would include a

Accepted Answer

The answer of On January 1, Soft Corporation had 80,000...

Question 13

The declaration and distribution of a stock dividend will

Accepted Answer

A stock dividend redistributes a portion of the company's retained earnings to its shareholders in the form of additional shares, rather than cash. This action increases the number of shares outstanding but does not affect the total value of the company's assets. The value is simply spread over a larger number of shares, so the overall stockholders' equity remains the same, and there is no impact on the total assets.

Question 14

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

Accepted Answer

When a board of directors assigns a per share value to a stock dividend, it must be at least equal to the par or stated value. This ensures that the stock's value is not diluted and maintains the integrity of the existing shares' value.

Question 15

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

Accepted Answer

When the board of directors authorizes a restriction of retained earnings for a future plant expansion, the amount of retained earnings available for dividend declarations is reduced. This means that the company will have less money available to pay out as dividends to its shareholders. This action does not affect total assets or liabilities, nor does it increase stockholders' equity.

Question 16

Stock dividends and stock splits have the following effects on retained earnings: $$\begin{array} { l c c } 
& \text { Stock Splits } & \text { Stock Dividends } \
\text { a. } & \text { Increase } & \text { No change } \
\text { b. } & \text { No change } & \text { Decrease } \
\text { c. } & \text { Decrease } & \text { Decrease } \
\text { d. } & \text { No change } & \text { No change }
\end{array}$$

Accepted Answer

The answer of Stock dividends and stock splits have the...

Question 17

Regular dividends are declared out of

Accepted Answer

Regular dividends are usually paid out of retained earnings, which represent the accumulated profits of a company that have not been distributed to shareholders. Paid-in capital in excess of par is an account that represents the amount of money that investors have paid for shares of stock over and above the par value of the shares, and it is not a source of funds for paying dividends. Treasury stock is stock that a company has bought back from its shareholders, and it is also not a source of funds for paying dividends. Common stock represents an ownership interest in a company, but it does not provide a direct source of funds for paying dividends.

Question 18

On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a

Accepted Answer

A stock dividend involves the distribution of additional shares of stock to current shareholders; it does not result in a cash outflow from the company.

When a company declares a stock dividend, it needs to increase the number of shares outstanding to reflect the dividend. This is done by transferring some amount from retained earnings to a separate stock dividend account.

In this case, Sway Corporation declared a 10% stock dividend, which means that each shareholder would receive an additional 6,000 shares (10% of 60,000). The value of these shares on March 17 was $13 each, so the total value of the dividend is $78,000 ($13 x 6,000).

The entry to record the stock dividend on March 17 is as follows:

Debit - Retained Earnings $78,000
Credit - Common Stock Dividends Distributable $60,000
Credit - Paid-in Capital in Excess of Par Value $18,000

The Retained Earnings account is debited for the market value of the stock, which represents the cost to the company of issuing the dividend. The Common Stock Dividends Distributable account is credited for the par value of the additional shares issued (6,000 x $10), and the Paid-in Capital in Excess of Par Value account is credited for the difference between the market value and the par value of the shares (6,000 x $3).

Therefore, the correct answer is C, credit to Common Stock Dividends Distributable for $60,000.

Question 19

The following selected amounts are available for Clark Company. $$\begin{array} { l r } 
\text { Retained earnings (beginning) } & \$ 900 \
\text { Net loss } & 150 \
\text { Cash dividends declared } & 100 \
\text { Stock dividends declared } & 100
\end{array}$$ What is its ending retained earnings balance?

Accepted Answer

The answer of The following selected amounts are available for...

Question 20

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

Accepted Answer

A small stock dividend is one in which the number of shares distributed is less than 20-25% of the total outstanding shares. When a small stock dividend is issued, the company reduces its retained earnings by the fair value of the additional shares, and the stockholders receive new shares that represent a small percentage of their existing shares.

Quiz 11: Corporations: Organization, Stock Transactions, Dividends, and Retained Earnings