Question 1

When stock dividends are distributed
A)Common Stock Dividends Distributable is decreased.
B)Retained Earnings is decreased.
C)Common Shares is debited.
D)no entry is necessary.

Accepted Answer

The answer of When stock dividends are distributed
A)Common Stock Dividends...

Question 2

The board of directors must assign a per share value to a stock dividend declared that is equal to the
A)average cost.
B)zero.
C)original issue price.
D)fair value.

Accepted Answer

The board of directors must assign a per share value to a stock dividend declared that is equal to the fair value. This is because stock dividends are considered a distribution of earnings to shareholders, and their value must accurately reflect the value of the company's assets. Assigning a value based on the original issue price or average cost would not accurately reflect the current value of the company's assets, and assigning a value of zero would not provide any benefit to shareholders.

Question 3

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

Accepted Answer

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

Question 4

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.

Accepted Answer

The incorporation date is not related to dividends. It is the date on which a company is formed and registered with the government authorities. The other three dates - declaration date, record date, and payment date - are all significant when it comes to dividends. The declaration date is when the company announces a dividend payment, the record date is the date on which shareholders must own stock in order to be eligible for the dividend, and the payment date is when the dividend is actually paid out to eligible shareholders.

Question 5

Which of the following would not affect the balance of the Retained Earnings account?
A)Profit
B)Stock dividend
C)Stock split
D)Cash dividend

Accepted Answer

A stock split would not affect the balance of the Retained Earnings account because a stock split simply increases the number of outstanding shares while decreasing the value of each share proportionally. It does not involve the payment or distribution of any earnings, therefore it does not impact the Retained Earnings account. Profit (A) increases the Retained Earnings account, while both stock dividend (B) and cash dividend (D) decrease the Retained Earnings account by distributing the earnings to shareholders.

Question 6

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.

Accepted Answer

On the dividend record date, no accounting entry is required. This date simply identifies the shareholders who are entitled to receive the dividend, but it does not involve any financial transaction that would necessitate an accounting entry.

Question 7

Corporations generally issue stock dividends in order to
A)increase the market price per share.
B)exceed shareholders' dividend expectations.
C)increase the marketability of the shares.
D)decrease the amount of capital in the corporation.

Accepted Answer

Stock dividends are often issued to increase the marketability of shares by making them more affordable to investors, without reducing the corporation's capital.

Question 8

Coombs Corp. declared a two-for-one stock split. Solly Fogarty owned 500 shares of Coombs that were trading for $20 each before the split. Which of the following is likely to be true after the split?
A)The number of shares Solly owns will increase by 50%.
B)The market price per share will drop by 50%.
C)The total market value of Solly's shares will double.
D)The market price per share will increase by 100%.

Accepted Answer

After the two-for-one stock split, Solly will own 1000 shares (500 x 2) but the market price per share will drop by 50% to $10 (original price of $20 divided by 2). Therefore, the total market value of Solly's shares will remain the same at $10,000 (500 x $20 before the split is the same as 1000 x $10 after the split). Note that while the number of shares Solly owns has increased by 100%, this is not the same as increasing by 50%. Option C is also not correct as the total market value of Solly's shares will not double. Finally, option D is not correct as the market price per share will not increase by 100%.

Question 9

The two most common types of dividends in practice are
A)cash and notes.
B)cash and property.
C)cash and stock.
D)property and stock.

Accepted Answer

The two most common types of dividends are cash and stock. Cash dividends are payments made to shareholders in cash, usually on a quarterly basis, whereas stock dividends are payments made in the form of additional shares of stock. Property dividends, which involve distribution of assets other than cash or stock, and notes dividends, which involve the issuance of promissory notes instead of cash, are less common.

Question 10

At December 31, 2012, Gem Garments Inc. has 10,000, $5, cumulative preferred shares issued. If the board of directors declares a $40,000 dividend at this date
A)the company will still owe the preferred shareholders $10,000 and should record a dividend payable for this amount.
B)the company will owe the preferred shareholders nothing further.
C)$10,000 will be disclosed as dividends in arrears in the notes to the financial statements.
D)the company still has to pay the preferred shareholders $50,000, regardless of what amount was declared.

Accepted Answer

The answer of At December 31, 2012, Gem Garments Inc....

Question 11

Which one of the following events would not require a 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.

Accepted Answer

A stock split does not require a journal entry as it does not affect the company's equity or assets. It only changes the number of outstanding shares and the per-share value. B, C, and D would all require journal entries as they involve changes in the company's equity and/or assets.

Question 12

Which of the following statements about dividends is not correct?
A)Cash dividends are generally declared quarterly as a dollar amount per share.
B)Dividends can be declared on both preferred and common shares.
C)The board of directors is obligated to declare dividends.
D)Dividends can be in cash or stock.

Accepted Answer

The board of directors is not obligated to declare dividends. It is within their discretion to determine whether or not to declare dividends and how much to declare.

Question 13

Which of the following statements regarding the date of a cash dividend declaration is not true?
A)The dividend can be cancelled 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 created or increased.

Accepted Answer

Once a cash dividend has been declared, the corporation has a legal, binding obligation to pay it and cannot cancel it. Therefore, statement A is not true. Statements B, C, and D are all true regarding the date of a cash dividend declaration.

Question 14

The declaration and distribution of a stock dividend will
A)increase total shareholders' equity.
B)increase total assets.
C)decrease total assets.
D)have no effect on total assets.

Accepted Answer

The answer of The declaration and distribution of a stock...

Question 15

If the statement of financial position is prepared after a stock dividend has been declared but before it has been distributed, the stock dividend distributable would be reported in the
A)liabilities section.
B)contributed capital section of shareholders' equity.
C)assets section.
D)It would not be reported in the statement of financial position.

Accepted Answer

Stock dividends distributable represents the amount of dividends that have been declared by the company but have not yet been paid to the shareholders. It is reported as a liability in the contributed capital section of shareholders' equity until it is distributed. Therefore, option B is the correct answer.

Question 16

Cambridge Corp declared a 5% stock dividend. Will Wales owned 300 shares of Cambridge before the dividend. Cambridge shares were trading at $21 before the dividend. Which of the following will be true after the dividend is distributed?
A)The total market value of Will's shares was $6,300 before the stock dividend but will probably decrease after the stock dividend.
B)The total market value of Will's shares was $6,300 before the stock dividend and $6,615 after the stock dividend.
C)Will owned 300 shares before the stock dividend and 315 shares after the stock dividend.
D)Fewer investors will be able to buy Cambridge shares.

Accepted Answer

The answer of Cambridge Corp declared a 5% stock dividend....

Question 17

Cash dividends are declared out of
A)Dividends Payable.
B)Preferred Shares.
C)Common Shares.
D)Retained Earnings.

Accepted Answer

Cash dividends are declared out of retained earnings, which are the profits earned but not distributed as dividends in previous years.

Question 18

JKL Inc. has 10,000, $2, noncumulative preferred shares and 150,000 common shares issued. What is the total annual dividend on the preferred shares?
A)$10,000
B)$20,000
C)$150,000
D)$300,000

Accepted Answer

The total annual dividend on the preferred shares is equal to the total number of preferred shares multiplied by the dividend per share. In this case, the total annual dividend on the preferred shares is 10,000 x $2 = $20,000. Therefore, the correct answer is B.

Question 19

The main purpose of a stock split is to
A)decrease the marketability of the stock by increasing the price.
B)increase the marketability of the stock by increasing the price.
C)increase the marketability of the stock by decreasing the price.
D)reduce the number of issued shares.

Accepted Answer

The main purpose of a stock split is to increase the marketability of the stock by decreasing the price. A stock split involves the company increasing the number of shares outstanding by dividing each existing share into multiple shares. This reduces the per-share price and makes the stock more affordable to a wider range of investors. It does not reduce the total value of the investor's holdings or decrease the marketability of the stock. Therefore, options A, B, and D are inaccurate.

Question 20

Indicate the respective effects of the declaration of a cash dividend on the following statement of financial position sections:

Accepted Answer

The answer of Indicate the respective effects of the declaration...

Quiz 11: Reporting and Analyzing Shareholders Equity

When stock dividends are distributed

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

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

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

Which of the following would not affect the balance of the Retained Earnings account?

On the dividend record date

Corporations generally issue stock dividends in order to

Coombs Corp. declared a two-for-one stock split. Solly Fogarty owned 500 shares of Coombs that were trading for $20 each before the split. Which of the following is likely to be true after the split?

The two most common types of dividends in practice are

At December 31, 2012, Gem Garments Inc. has 10,000, $5, cumulative preferred shares issued. If the board of directors declares a $40,000 dividend at this date

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

Which of the following statements about dividends is not correct?

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

The declaration and distribution of a stock dividend will

If the statement of financial position is prepared after a stock dividend has been declared but before it has been distributed, the stock dividend distributable would be reported in the

Cambridge Corp declared a 5% stock dividend. Will Wales owned 300 shares of Cambridge before the dividend. Cambridge shares were trading at $21 before the dividend. Which of the following will be true after the dividend is distributed?

Cash dividends are declared out of

JKL Inc. has 10,000, $2, noncumulative preferred shares and 150,000 common shares issued. What is the total annual dividend on the preferred shares?

The main purpose of a stock split is to

Indicate the respective effects of the declaration of a cash dividend on the following statement of financial position sections: