Deck 14: Corporations: Dividends, Retained Earnings, and Income Reporting

Question 1

Income tax expense usually appears as a separate section on a corporation income statement.

Answer 1

True

Question 2

The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

Answer 2

False

Question 3

A corporation incurs income tax expense only if it pays dividends to stockholders.

Answer 3

False

Question 4

Retained earnings represents the amount of cash available for dividends.

Question 5

A correction in income of a prior period involves either a debit or credit to the Retained Earnings account.

Question 6

Dividends may be declared and paid in cash or stock.

Question 7

Retained earnings that are restricted are unavailable for dividends.

Question 8

Cash dividends are not a liability of the corporation until they are declared by the board of directors.

Question 9

Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.

Question 10

Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders' equity section of the balance sheet.

Question 11

A detailed stockholders' equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record.

Question 12

A 10% stock dividend will increase the number of shares outstanding but the par value per share will stay the same.

Question 13

Prior period adjustments to income are reported in the current year's income statement.

Question 14

A major difference among corporations proprietorships and partnerships is that a corporation's income statement reports income tax expense.

Question 15

A debit balance in the Retained Earnings account is identified as a deficit.

Question 16

A retained earnings statement shows the same information as a corporation income statement.

Question 17

Return on common stockholders' equity is computed by dividing net income by ending stockholders' equity.

Question 18

Many companies prepare a stockholders' equity statement instead of presenting a detailed stockholders' equity section in the balance sheet.

Question 19

A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock.

Question 20

Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.

Question 21

Which one of the following is not necessary in order for a corporation to pay a cash dividend?

A) Adequate cash
B) Approval of stockholders
C) Declaration of dividends by the board of directors
D) Retained earnings

Question 22

A dividend based on paid-in capital is termed a liquidating dividend.

Question 23

Rendezvous Inc. has 10000 shares of 5% $100 par value noncumulative preferred stock and 20000 shares of $1 par value common stock outstanding at December 31 2017. There were no dividends declared in 2016. The board of directors declares and pays a $110000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?

A) $0
B) $50000
C) $110000
D) $60000

Question 24

Each of the following decreases retained earnings except a

A) cash dividend.
B) liquidating dividend.
C) stock dividend.
D) All of these decrease retained earnings.

Question 25

Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders' equity section.

Question 26

Solaris Inc. has 2000 shares of 5% $10 par value cumulative preferred stock and 50000 shares of $1 par value common stock outstanding at December 31 2017. What is the annual dividend on the preferred stock?

A) $5 per share
B) $1000 in total
C) $10000 in total
D) $.05 per share

Question 27

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

A) decrease total liabilities and stockholders' equity.
B) increase total expenses and total liabilities.
C) increase total assets and stockholders' equity.
D) decrease total assets and stockholders' equity.

Question 28

Most companies are required to report earnings per share on the face of the income statement.

Question 29

Income tax expense and the related liability for income taxes payable are recorded when taxes are paid.

Question 30

Preferred dividends paid are added back to net income in calculating earnings per share for common stockholders.

Question 31

If a corporation declares a dividend based upon paid-in capital it is known as a

A) scrip dividend.
B) property dividend.
C) paid dividend.
D) liquidating dividend.

Question 32

Earnings per share is reported only for common stock.

Question 33

The date on which a cash dividend becomes a binding legal obligation is on the

A) declaration date.
B) date of record.
C) payment date.
D) last day of the fiscal year-end.

Question 34

Peabody Inc. has 5000 shares of 7% $100 par value cumulative preferred stock and 50000 shares of $1 par value common stock outstanding at December 31 2017. If the board of directors declares a $30000 dividend the

A) preferred shareholders will receive 1/10th of what the common shareholders will receive.
B) preferred shareholders will receive the entire $30000.
C) $30000 will be held as restricted retained earnings and paid out at some future date.
D) preferred shareholders will receive $15000 and the common shareholders will receive $15000.

Question 35

The effect of the declaration of a cash dividend by the board of directors is to $\begin{array} { l c c } &&& \text { Increase } &&&&&& \text { Decrease } \\\end{array}$

A) $\begin{array} { l c c } & \text { Stockholders' equity } && \text { Assets } \\\end{array}$
B) $\begin{array} { l c c } & \text { Assets } &&&&&&&& \text { Liabilities } \\\end{array}$
C) $\begin{array} { l c c } & \text { Liabilities } &&&&&& \text { Stockholders' equity } \\\end{array}$
D) $\begin{array} { l c c } & \text { Liabilities } &&&&&& \text { Assets }\end{array}$

Question 36

A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.

Question 37

Earnings per share indicates the net income earned by each share of outstanding common stock.

Question 38

Earnings per share is calculated by dividing net income by the weighted-average number of shares of preferred stock and common stock outstanding.

Question 39

Each of the following decreases total stockholders' equity except a

A) cash dividend.
B) liquidating dividend.
C) stock dividend.
D) All of these decrease total stockholders' equity.

Question 40

Earnings per share is reported for both preferred and common stock.

Question 41

Burnell Inc. has 5000 shares of 4% $50 par value cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31 2016 and December 31 2015. The board of directors declared and paid a $8000 dividend in 2016. In 2017 $30000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2017? $\begin{array} { l l l } & \text { Preferred } & \text { Common} \\\end{array}$

A) $\begin{array} { l l l } & \$ 18,000 && \$ 12,000 \\\end{array}$
B) $\begin{array} { l l l } & \$ 15,000 && \$ 15,000 \\\end{array}$
C) $\begin{array} { l l l } & \$ 12,000 && \$ 18,000 \\\end{array}$
D) $\begin{array} { l l l } & \$ 10,000 && \$ 20,000\end{array}$

Question 42

Art Inc. has 2500 shares of 5% $100 par value cumulative preferred stock and 20000 shares of $1 par value common stock outstanding from December 31 2015 through Dec. 31 2017. There were no dividends declared in 2015. The board of directors declares and pays a $22500 dividend in 2016 and in 2017. What is the amount of dividends received by the common stockholders in 2017?

A) $7500
B) $12500
C) $22500
D) $0

Question 43

Dividends Payable is classified as a

A) long-term liability.
B) contra stockholders' equity account to Retained Earnings.
C) current liability.
D) stockholders' equity account.

Question 44

Somento Forest Inc. has 10000 shares of 6% $100 par value cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31 2017. What is the annual dividend on the preferred stock?

A) $60 per share
B) $60000 in total
C) $100000 in total
D) $0.60 per share

Question 45

Laser Inc. has 1000 shares of 6% $50 par value cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31 2017 and December 31 2016. The board of directors declared and paid a $2500 dividend in 2016. In 2017 $12000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2017?

A) $8500
B) $6000
C) $3500
D) $3000

Question 46

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.

Question 47

Outstanding stock of the Crevusse Corporation included 40000 shares of $5 par common stock and 20000 shares of 5% $10 par noncumulative preferred stock. In 2016 Crevusse declared and paid dividends of $8000. In 2017 Crevusse declared and paid dividends of $24000. How much of the 2017 dividend was distributed to preferred shareholders?

A) $14000
B) $8000
C) $10000
D) None of these answer choices are correct

Question 48

Bodkin Inc. has 5000 shares of 5% $100 par value noncumulative preferred stock and 50000 shares of $1 par value common stock outstanding at December 31 2016 and December 31 2017. The board of directors declared and paid a $25000 dividend in 2016. In 2017 $55000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2017? $\begin{array} { l l l } & \text { Preferred } & \text { Common} \\\end{array}$

A) $\begin{array}{ll}\$ 0 & &&&&\$ 55,000 \\\end{array}$
B) $\begin{array}{ll}\$ 25,000 &&& \$ 30,000 \\\end{array}$
C) $\begin{array}{ll}\$ 27,500 &&& \$ 27,500 \\\end{array}$
D) $\begin{array}{ll}\$ 35,000 &&& \$ 20.000\end{array}$

Question 49

Outstanding stock of the Larson Corporation included 40000 shares of $5 par common stock and 10000 shares of 5% $10 par noncumulative preferred stock. In 2016 Larson declared and paid dividends of $4000. In 2017 Larson declared and paid dividends of $12000. How much of the 2017 dividend was distributed to preferred shareholders?

A) $6000
B) $7000
C) $5000
D) None of these answer choices are correct

Question 50

Regular dividends are declared out of

A) Paid-in Capital in Excess of Par.
B) Treasury Stock.
C) Common Stock.
D) Retained Earnings.

Question 51

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

Question 52

Which of the following statements about dividends is not accurate?

A) Many companies declare and pay cash quarterly dividends.
B) Low dividends may mean high stock returns.
C) The board of directors is obligated to declare dividends.
D) A legal dividend may not be a feasible one.

Question 53

River Forest Inc. has 5000 shares of 6% $100 par value noncumulative preferred stock and 50000 shares of $1 par value common stock outstanding at December 31 2017. If the board of directors declares a $100000 dividend the

A) preferred stockholders will receive 1/10^th of what the common stockholders will receive.
B) preferred stockholders will receive the entire $100000.
C) $30000 will be held as restricted retained earnings and paid out at some future date.
D) preferred stockholders will receive $30000 and the common stockholders will receive $70000.

Question 54

A corporation is not committed to a legal obligation when it declares

A) a cash dividend.
B) either a cash dividend or a stock dividend.
C) a stock dividend.
D) a distribution date.

Question 55

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

A) The dividend can be rescinded 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 increased.

Question 56

Dividends are predominantly paid in

A) earnings.
B) property.
C) cash.
D) stock.

Question 57

The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to

A) decrease current liabilities and stockholders' equity.
B) increase total assets and stockholders' equity.
C) increase current liabilities and stockholders' equity.
D) decrease stockholders' equity and total assets.

Question 58

Dabney Inc. has 5000 shares of 5% $100 par value noncumulative preferred stock and 40000 shares of $1 par value common stock outstanding at December 31 2017. There were no dividends declared in 2016. The board of directors declares and pays a $60000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?

A) $0
B) $25000
C) $10000
D) $35000

Question 59

Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections: $\begin{array}{lccc} \text { Total Assets } & \text { Total Liabilities } & \text { Total Stockholders' Equity } \\\end{array}$

A) $\begin{array}{lccc} \text {Increase } &&&& \text { Decrease } &&&& \text { No change } \\\end{array}$
B) $\begin{array}{lccc} \text {No change } &&&& \text { Increase } &&&& \text { Decrease } \\\end{array}$
C) $\begin{array}{lccc} \text {Decrease } &&&&& \text { Increase } &&&& \text { Decrease } \\\end{array}$
D) $\begin{array}{lccc} \text {Decrease } &&&&& \text { No change } &&& \text { Increase }\end{array}$

Question 60

CCCR Inc. has 2000 shares of 6% $50 par value cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31 2016 and December 31 2017. The board of directors declared and paid a $4000 dividend in 2016. In 2017 $24000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2017?

A) $16000
B) $12000
C) $8000
D) $6000

Question 61

Identify the effect the declaration and distribution of a stock dividend has on the par value per share.

A) Increase
B) Decrease
C) Increase or decrease
D) No effect

Question 62

The per share amount normally assigned by the board of directors to a large stock dividend is

A) the market value of the stock on the date of declaration.
B) the average price paid by stockholders on outstanding shares.
C) the par or stated value of the stock.
D) zero.

Question 63

On December 31 2017 Stanford Inc. has 1500 shares of 6% $100 par value cumulative preferred stock and 90000 shares of $10 par value common stock outstanding. On December 31 2017 the directors declare a $30000 cash dividend. The entry to record the declaration of the dividend would include:

A) a credit of $30000 to Cash Dividends.
B) a note in the financial statements that dividends of $3 per share are in arrears on preferred stock for 2017.
C) a debit of $30000 to Common Stock.
D) a credit of $30000 to Dividends Payable.

Question 64

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

A) greater than the par or stated value.
B) less than the par or stated value.
C) equal to the par or stated value.
D) at least equal to the par or stated value.

Question 65

On January 1 Key Corporation had 2000000 shares of $10 par value common stock outstanding. On March 31 the company declared a 20% stock dividend. Market value of the stock was $15/share. As a result of this event

A) Key's Paid-in Capital in Excess of Par account increased $2000000.
B) Key's total stockholders' equity was unaffected.
C) Key's Stock Dividends account increased $6000000. d All of these answer choices are correct.

Question 66

The effect of a stock dividend is to

A) decrease total assets and stockholders' equity.
B) change the composition of stockholders' equity.
C) decrease total assets and total liabilities.
D) increase the book value per share of common stock.

Question 67

Common Stock Dividends Distributable is classified as a(n)

A) asset account.
B) stockholders' equity account.
C) expense account.
D) liability account.

Question 68

Which of the following show the proper effect of a stock split and a stock dividend? $\begin{array}{ccc}&&&&\text { Item}&&&&&\text { Stock Split } && \text { Stock Dividend } \\\end{array}$

A) $\begin{array}{ccc}\text { Total paid-in capital } &&& \text { Increase } &&& \text { Increase } \\\end{array}$
B) $\begin{array}{ccc}\text { Total retained earnings } && \text { Decrease } &&& \text { Decrease } \\\end{array}$
C) $\begin{array}{ccc}\text { Total par value (common) } & \text { Decrease } &&& \text { Increase } \\\end{array}$
D) $\begin{array}{ccc}\text { Par value per share } &&&& \text { Decrease } &&& \text { No change }\end{array}$

Question 69

The per share amount normally assigned by the board of directors to a small stock dividend is

A) the market value of the stock on the date of declaration.
B) the average price paid by stockholders on outstanding shares.
C) the par or stated value of the stock.
D) zero.

Question 70

When stock dividends are distributed

A) Common Stock Dividends Distributable is decreased.
B) Retained Earnings is decreased.
C) Paid-in Capital in Excess of Par is debited if it is a small stock dividend.
D) no entry is necessary if it is a large stock dividend.

Question 71

On January 1 Ecuyer Corporation had 1600000 shares of $10 par value common stock outstanding. On March 31 the company declared a 15% stock dividend. Market value of the stock was $15/share. As a result of this event

A) Ecuyer's Paid-in Capital in Excess of Par account increased $1200000.
B) Ecuyer's total stockholders' equity was unaffected.
C) Ecuyer's Stock Dividends account increased $3600000.
D) All of these answer choices are correct.

Question 72

Of the various dividends types the two most common types in practice are

A) cash and large stock.
B) cash and property.
C) cash and small stock.
D) property and small stock.

Question 73

A small stock dividend is defined as

A) less than 30% but greater than 25% of the corporation's issued stock.
B) between 50% and 100% of the corporation's issued stock.
C) more than 30% of the corporation's issued stock.
D) less than 20-25% of the corporation's issued stock.

Question 74

If a corporation declares a 10% stock dividend on its common stock the account to be debited on the date of declaration is

A) Common Stock Dividends Distributable.
B) Common Stock.
C) Paid-in Capital in Excess of Par.
D) Stock Dividends.

Question 75

A stock split

A) may occur in the absence of retained earnings.
B) will increase total paid-in capital.
C) will increase the total par value of the stock.
D) will have no effect on the par value per share of stock.

Question 76

Sebastiani Inc. declared a $80000 cash dividend. It currently has 3000 shares of 7% $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Sebastiani distribute to the common stockholders?

A) $38000.
B) $42000.
C) $59000.
D) None of these answer choices are correct.

Question 77

A stockholder who receives a stock dividend would

A) expect the market price per share to increase.
B) own more shares of stock.
C) expect retained earnings to increase.
D) expect the par value of the stock to change.

Question 78

The declaration of a stock dividend will

A) increase paid-in capital.
B) change the total of stockholders' equity.
C) increase total liabilities.
D) increase total assets.

Question 79

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

A) large stock dividend.
B) cash dividend.
C) contingent dividend.
D) small stock dividend.

Question 80

Corporations generally issue stock dividends in order to

A) increase the market price per share.
B) exceed stockholders' dividend expectations.
C) increase the marketability of the stock.
D) decrease the amount of capital in the corporation.