Deck 21: Corporate Earnings and Capital Transactions

Question 1

Corporations are subject to the same tax filing deadlines as individual taxpayers.

Answer 1

False

Question 2

The Deferred Income Tax account represents postponement of taxes payable to a future period.

Answer 2

True

Question 3

The entry to record the payment of a cash dividend includes a debit to Retained Earnings and a credit to Cash.

Answer 3

False

Question 4

The Stockholders' Equity section of the balance sheet reports contributed capital separate from corporate retained earnings.

Question 5

A 3-for-2 stock split will triple the reported dollar amount of stockholders' equity.

Question 6

A corporation may report net income for federal income tax purposes at an amount different from the amount reported for financial accounting purposes.

Question 7

The Dividends Payable accounts appear on the balance sheet as a current liability.

Question 8

Declarations of cash dividends and stock dividends are debited to the Retained Earnings account.

Question 9

The entry to record the income tax payable would include debit to Retained Earnings and a credit to Income Tax Payable.

Question 10

The entry to adjust for over-estimated income taxes paid would include a credit to Income Tax Expense.

Question 11

The entry to record the distribution of a stock dividend includes a credit to Common Stock Dividend Distributable.

Question 12

Retained Earnings represents the cash earned throughout the years less amounts paid out as dividends.

Question 13

Both cash dividends and stock dividends decrease the total stockholders' equity.

Question 14

Deferred Tax Assets are created whenever taxes are paid on revenue transactions that will be reflected in future financial statement income.

Question 15

As long as actual tax expense does not materially differ from estimated tax expense,a corporation may record the difference in the subsequent year and not violate the matching principle in so doing.

Question 16

Deferred income taxes arise because the taxable income of a corporation can differ from the net income reported on its financial statements.

Question 17

Under MACRS depreciation,a corporation receives a tax benefit in the current year higher than the deduction reflected on the financial statements causing deferred taxes payable to increase.

Question 18

Corporations are required to make quarterly estimated tax payments based on estimated tax expense.

Question 19

The last closing entry for a corporation transfers the net income after income taxes from the Income Summary account to Retained Earnings.

Question 20

Contributed capital represents the cumulative profits and losses of the corporation less dividends declared and distributed.

Question 21

____________,represents the amount of capital acquired from capital stock transactions and is another name for contributed capital.

Question 22

The Dividends Payable account appears on the balance sheet as a(n)____________________ liability.

Question 23

The effect of issuing a stock dividend is to convert a portion of the corporation's ____________________ to permanent capital.

Question 24

The ____________________ value of each share of stock is the total equity applicable to the class of stock divided by the number of shares outstanding.

Question 25

When treasury stock is purchased,the Treasury Stock account is debited for the entire amount paid for the stock.

Question 26

Property that is received as a gift should be recorded in the corporation's records at the asset's fair market value.

Question 27

Retained earnings do not represent a cash fund.

Question 28

When a corporation purchases its own stock and intends to reissue that stock at a later date,the cost of the shares is shown in the Assets section of the balance sheet until the stock is reissued.

Question 29

When a previously declared stock dividend is distributed,the accountant makes an entry debiting Common Stock Dividend Distributable and crediting ___________________.

Question 30

A stock ____________________ increases the number of shares of stock outstanding and decreases the par value,or stated value,per share proportionally.

Question 31

If a corporation receives a gift of land valued at $10,000 from a city,the accountant will record a debit to Land and a credit to ___________________.

Question 32

Accumulated profits kept in the business and not distributed as dividends to stockholders are called ___________________.

Question 33

A corporation may use ___________ to lower market share prices in an effort to attract new investors.

Question 34

The entry to record the declaration of a stock split includes a debit to Retained Earnings.

Question 35

Although the balance of the Retained Earnings account is decreased,a(n)____________________ dividend will not result in a decrease in total stockholders' equity.

Question 36

Company covenants (contracts,borrowing arrangements)may prevent the company from distributing profits to its shareholders.

Question 37

The effect of an event or transaction that is infrequent in occurrence and highly unusual in nature is shown as a(n)____________________ item on the income statement.

Question 38

On the date of declaration of a stock split,a(n)____________________ notation is recorded in the general journal.

Question 39

An appropriation of retained earnings reduces the amount of retained earnings available for dividend declarations.

Question 40

To be entitled to receive a cash dividend,an investor must be listed as an owner of the stock on the ____________________ date.

Question 41

Which of the following statements regarding the income statements of corporations is not correct?

A) Some corporations include cost of goods sold with the operating expenses.
B) Some corporations show income tax expense as an operating expense rather than as a deduction from net income before income tax.
C) If a gain or loss results from a transaction that is highly unusual,is clearly unrelated to routine operations,and is not expected to occur again in the near future,the gain or loss is shown as an operating expense.
D) Corporations can use a variety of formats for the income statement.

Question 42

The worksheet for a corporation and a sole proprietorship are almost identical.The major difference is the

A) adjustment for accrued revenues.
B) adjustment for accrued expenses.
C) income tax adjustment.
D) adjustment for depreciation.

Question 43

A corporation reported a net income of $90,000 for its fiscal year and declared and paid cash dividends of $60,000.A stock dividend recorded at $30,000 was also distributed during the year.If the beginning balance of the Retained Earnings account was $140,000,the ending balance is

A) $230,000.
B) $170,000.
C) $140,000.
D) $130,000.

Question 44

A corporation had 50,000 shares of $20 par value common stock outstanding on November 1 with no preferred stock issued or outstanding.The company's retained earnings was $200,000 and total stockholders' equity was $500,000.Later that day,the board declared a 10% stock dividend when the market value of each share was $25.Shortly after declaration,the market value fell to $22.50 per share.Sam Lewis owned 200 shares of stock prior to the declaration.After the stock dividend,the total book value of Lewis' stock after receiving additional shares was:

A) $1,000.
B) $2,000.
C) $4,500.
D) $5,000.

Question 45

If the corporation's income tax computed at the end of the year is less than the total of quarterly deposits,the necessary adjustment will result in a

A) debit to Income Tax Expense.
B) credit to Income Tax Payable.
C) debit to Income Tax Refund Receivable.
D) credit to Income Tax Refund Receivable.

Question 46

When the cumulative taxable income is higher than that reported on the financial statements,this gives rise to

A) a deferred income tax liability.
B) a deferred income tax asset.
C) Either of these.
D) Neither of these.

Question 47

A declaration and distribution of a 20 percent stock dividend on common stock will

A) not change the total stockholders' equity.
B) increase the assets of the corporation.
C) result in an increase in the book value of each share of common stock outstanding.
D) increase the liabilities of the corporation.

Question 48

The adjustment for the amount of future taxes to be paid as a result of the MACRS depreciation deduction taken in this and prior years is recorded with a debit to

A) Tax Expense and a credit to Deferred Income Tax Liability.
B) Deferred Income Tax Liability and a credit to Tax Expense.
C) Tax Expense and a credit to Deferred Income Tax Asset.
D) Deferred Income Tax Asset and a credit to Tax Expense.

Question 49

The Retained Earnings Appropriated-Treasury Stock account is shown in the ____________________ section of the balance sheet.

Question 50

Which of the following statements is not correct?

A) Corporations must estimate and prepay their income taxes through quarterly tax deposits.
B) At the end of the year,when the worksheet is prepared,the Income Tax Expense account is adjusted only if the corporation owes additional taxes.
C) Income Tax Expense may be shown as an operating expense on a corporation's income statement.
D) On a corporate income statement,the tax effect of each extraordinary item is offset against each gain or loss to show the effect 'net of taxes'.

Question 51

A corporation's own capital stock that has been reacquired is called ____________________ stock.

Question 52

When a corporation reacquires stock that it previously issued and intends to reissue at a later date,the ____________________ account is debited.

Question 53

Which of the following statements is not correct?

A) Book value for each share of stock is the total equity applicable to the class of stock dividend by the number of shares issued.
B) The total book value of a class of stock is increased after a stock dividend.
C) The total book value of a class of stock is decreased after a stock dividend.
D) All of these statements are correct.In theory,a stock dividend should result in a proportionate reduction in each share's market value.

Question 54

The cost of treasury stock is deducted from the sum of all items in the ____________________ section of the balance sheet.

Question 55

The record date is the date

A) on which the board of directors declares the dividend.
B) used to determine who will receive the dividend.
C) on which the dividend is paid.
D) on which the dividend transaction is recorded in the general journal.

Question 56

The entry to record the declaration of a cash dividend consists of a debit to

A) Dividend Expense and a credit to Cash.
B) Retained Earnings and a credit to Common Stock Dividend Distributable.
C) Dividends Payable and a credit to Retained Earnings.
D) Retained Earnings and a credit to Dividends Payable.

Question 57

Samuel Corporation declared and distributed a 10 percent stock dividend on its $5 par common stock in November.10,000 shares of common were authorized,8,000 were issued and outstanding at the declaration.The market value on the date of declaration was $12 per share.The amount credited to Paid-in-Capital in Excess of Par Value-Common Stock is:

A) $0.
B) $4,000.
C) $5,600.
D) $9,600.

Question 58

A liability for the payment of cash dividends is recorded

A) on the date the board of directors publicly declares its intention to pay the dividends.
B) only when cumulative preferred dividends are passed over (not paid)and are in arrears.
C) at the end of any year during which common stock dividends were not paid.
D) at the end of every year that the corporation makes a profit.

Question 59

Which of the following statements is not correct?

A) Retained earnings represents a cash fund.
B) A corporation can have a large cash balance but no retained earnings.
C) A corporation can have a balance in the Retained Earnings account but no cash.
D) Retained earnings represent the undistributed profits and losses of the corporation.

Question 60

A corporation reported a net income of $120,000 for its fiscal year and declared and paid cash dividends of $50,000.A stock dividend recorded at $80,000 was also distributed during the year.If the beginning balance of the Retained Earnings account was $200,000,the ending balance is

A) $170,000.
B) $190,000.
C) $200,000.
D) $270,000.

Question 61

Treasury Stock is often purchased for all of the following reasons except:

A) to distribute at a later date in connection with an employee incentive plan.
B) to avoid a hostile takeover.
C) to maintain or increase market value for the company stock.
D) to increase stockholders' book value per share.

Question 62

Gender Corporation declared and issued a 10% stock dividend on December 1.Prior to the declaration,Gender's retained earnings were $200,000,shares outstanding were 20,000,$5 par value,common stock with a current market value of $10 per share.Contributed capital will increase (decrease)as a result of recording this stock dividend by:

A) $0.
B) $10,000.
C) $(10,000).
D) $20,000.

Question 63

On April 15,the board of directors declared a 2 for 1 split on Samco's 20,000 outstanding shares of $10 par,common stock.After the split,the total number of shares and par value per share are:

A) 20,000 shares,$10 par.
B) 10,000 shares,$20 par.
C) 40,000 shares,$5 par.
D) 20,000 shares,$5 par.

Question 64

A formal method by which a company can restrict dividend distributions.

A) Deferral.
B) Appropriation.
C) Declaration.
D) Reserve.

Question 65

Which of the following would be found on a corporation's income statement?

A) Retained Earnings
B) Income Tax Expense
C) Organization Costs
D) Dividends Payable

Question 66

An appropriation of retained earnings represents

A) cash set aside for some designated purpose.
B) a portion of retained earnings that is currently unavailable for dividends.
C) a current liability of the corporation.
D) a current asset of the corporation.

Question 67

A stock dividend transfers:

A) Retained earnings to contributed capital.
B) Contributed capital to retained earnings.
C) Contributed capital to assets.
D) Assets to contributed capital.

Question 68

When a corporation reacquires its own shares of stock,

A) the Treasury Stock account is debited for the par value of the shares reacquired.
B) the Treasury Stock account is debited for the price paid to reacquire the shares.
C) the Treasury Stock account is debited for the original issue price of the shares.
D) the Treasury Stock account is credited for the current market value of the shares.

Question 69

Which of the following statements is correct?

A) The Common Stock Dividends Distributable account is shown as a current liability on the balance sheet.
B) When a stock dividend is distributed,no assets leave or enter the corporation.
C) When a stock dividend is declared,the total amount debited to Retained Earnings is the par value,or stated value,of the shares to be issued.
D) When a stock dividend is declared,the total amount of the dividend is debited to the Common Stock account.

Question 70

Which of the following statements is not correct?

A) The entry to record the appropriation of retained earnings for warehouse construction includes a debit to Retained Earnings.
B) Appropriated retained earnings are listed separately on the balance sheet.
C) When retained earnings are appropriated,cash is set aside for a specific purpose.
D) Dividends cannot be declared from appropriated retained earnings.

Question 71

Aspen Corporation reported net income of $120,000 for its fiscal year and declared and paid cash dividends of $60,000 during the year.In November the 10,000 shares of $10 par,common stock split,2 for 1.If the ending balance of the Retained Earnings prior to the split was $200,000,the beginning balance was

A) $120,000.
B) $140,000.
C) $150,000.
D) $160,000.

Question 72

The entry to record the appropriation of funds to reacquire its own stock includes a

A) debit to Treasury Stock-Common.
B) credit to Treasury Stock-Common.
C) debit to Retained Earnings.
D) debit to Retained Earnings Appropriated for Treasury Stock Purchase.

Question 73

The declaration of a cash dividend will result in a decrease in:

A) Cash.
B) Retained earnings.
C) Contributed capital.
D) Income taxes.

Question 74

Total stockholders' equity would be decreased by

A) a stock split.
B) an appropriation of retained earnings.
C) a cash dividend.
D) a stock dividend.

Question 75

Butler Corporation declared and issued a 10% stock dividend on December 1.Prior to the declaration,Butler's retained earnings were $800,000,shares outstanding were 50,000,$5 par value,common stock with a current market value of $10 per share.Total stockholders' equity will increase (decrease)as a result of recording this stock dividend by:

A) $0.
B) $140,000.
C) $(25,000).
D) $(50,000).

Question 76

A corporation reported a net income of $120,000 for its fiscal year and declared and paid cash dividends of $60,000.A stock dividend recorded at $40,000 was also distributed during the year.If the ending balance of the Retained Earnings account was $200,000,the beginning balance was

A) $160,000.
B) $180,000.
C) $200,000.
D) $220,000.

Question 77

A corporation reacquired 400 shares of its $100 par-value common stock for $105 a share.The entry to record this transaction includes a

A) debit to Treasury Stock-Common for $40,000.
B) debit to Treasury Stock-Common for $42,000.
C) credit to Paid-in Capital for Treasury Stock Transactions-Common for $40,000.
D) credit to Treasury Stock-Common for $42,000.

Question 78

Which of the following would not change the amount of total retained earnings for the year?

A) cash dividends declared and distributable
B) the net income after taxes for the year
C) stock dividends declared and distributed
D) the transfer of retained earnings appropriated for treasury stock

Question 79

Treasury stock is

A) stock previously paid for in full by a stockholder,then repurchased by the issuing corporation.
B) donated by stockholders.
C) always preferred stock.
D) categorized under Paid-in Capital on the balance sheet and added to preferred and common stock.

Question 80

The Treasury Stock account is shown on the balance sheet as

A) an asset.
B) an addition to the Common Stock and Preferred Stock accounts in the Stockholders' Equity section.
C) a deduction from the Retained Earnings in the Stockholders' Equity section.
D) a deduction from the sum of all other items in the Stockholders' Equity section.