Deck 11: Stockholders Equity

Question 1

Yet Corporation had net earnings of $500,000. It paid $125,000 in dividends to the preferred shareholders. Yet Corporation had a weighted average of 1,500,000 common shares and 250,000 preferred shares. Yet Corporation's earnings per share was:

A) $0.25
B) $0.33
C) $0.29
D) $0.21

Answer 1

$0.25

Question 2

Which one of the following is not a basic right of an owner of common share?

A) Participation in the corporation by voting in shareholder meetings.
B) Participation in the pro?ts of the corporation through dividends declared by the board of directors.
C) Sharing in the responsibility of setting next year's budget.
D) Sharing in the distribution of assets of the corporation at liquidation.

Answer 2

Sharing in the responsibility of setting next year's budget.

Question 3

Cardwell Realty Limited has 20,000 common shares issued and outstanding at January 1, 20X4. On July 1, the company sold an additional 10,000 common shares for proceeds of $100,000. Net income for the year was $30,000. What would the earnings per share be?

A) $1.00
B) $1.50
C) $1.20
D) $4.00

Answer 3

$1.20

Question 4

Which of the following statements is true?

A) Common shares have a dividend rate fixed by the share contract.
B) Preferred shares have a volatile market value therefore, they are a riskier investment than common shares.
C) Corporations are not always considered to be a separate legal entity.
D) Transfer of ownership is easy with a corporation.

Question 5

The articles of incorporation include all of the following except:

A) The types of shares to be issued.
B) the costs of issuing the shares.
C) the type of business to be conducted
D) how the board of directors will be organized

Question 6

With respect to a corporation, select the statement that is false:

A) Its organization requires an approved charter which is governed by state law.
B) Ownership rights to the corporation are transferable.
C) A corporation is a separate legal entity from its owners.
D) A corporation cannot sue others or be sued.

Question 7

A "gain" on the sale of treasury shares should be credited to

A) contributed surplus
B) share capital
C) other income
D) retained earnings

Question 8

Which of the following statements about issuing common shares is true?

A) The total amount received is referred to as legal capital and it may be paid out as dividends once the company is pro?table.
B) The total amount received is referred to as legal capital and it cannot be paid out as dividends.
C) All classes of common shares pay identical dividends.
D) All classes of common shares have the same voting rights.

Question 9

The authorized shares of a corporation

A) only reflects the initial capital needs of the company.
B) is indicated in its by-laws.
C) is indicated in its charter.
D) must be recorded in a formal accounting entry.

Question 10

Which of the following represents the shares currently in the hands of investors?

A) Authorized shares
B) Issued shares
C) Outstanding shares
D) Unissued shares

Question 11

Which of the following statements is false?

A) Most small shareholders who do not attend the corporation's annual meeting, can cast their vote by proxy card.
B) Some corporations are evaluated by application to a specific provincial government.
C) Some corporations are evaluated by application to the federal government.
D) Corporations do not limit the liability of its owners.

Question 12

A company purchased its own shares on January 1, 2014 for $20,000 and debited Treasury Shares for the purchase price. The shares were subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a debit to

A) retained earnings
B) loss from sale of treasury shares
C) Contributed Surplus to the extent that previous net "gains" from sales or retirements of the same class of shares exist, otherwise, to retained earnings
D) Contributed Surplus, regardless of whether previous net "gains" from sales or retirements of the same class of shares exist.

Question 13

Berkson Hawthorn is a public company trading on the Toronto Stock Exchange. The company's shares are currently trading for $16.00 per share. Berkson just released the following information related to its 20X7 year-end: $$\begin{array} { | l | r | r | } \hline & \underline { \mathbf { 2 0 X 7 } } & \underline { \mathbf { 2 0 X 6 } } \\\hline \text { Total assets } & \$ 14,500,000 & \$ 13,250,000 \\\hline \text { Total liabilities } & \$ 7,500,000 & \$ 6,750,000 \\\hline \text { Net income } & \$ 762,500 & \$ 555,000 \\\hline \text { Preferred share dividends } & \$ 65,000 & \$ 65,000 \\\hline \text { Average number of common shares outstanding } & 100,000 & 100,000 \\\hline\end{array}$$ For 20X7, the company's earnings per share were closest to

A) $6.50
B) $6.98
C) $7.63
D) $7.00

Question 14

An additional contributed surplus account under shareholders' equity is the result of:

A) the sale of preferred shares
B) the sale of par value shares
C) the sale of no par value shares
D) legal capital

Question 15

Which of the following statements about shares issued in exchange for assets is true?

A) They impact cash ?ows.
B) They are disclosed in a note to the statement of cash ?ows.
C) They are classi?ed as operating activities.
D) They are classi?ed as investment activities.

Question 16

From an investor's viewpoint, in today's litigious environment, what would be considered the most advantageous characteristic of the corporate form of organization?

A) Lack of income taxes on the business itself.
B) Absolute control and management in the hands of shareholders.
C) Non-applicability of going concern.
D) Limited liability for shareholders.

Question 17

Belson Ltd. was organized on January 1, 20X4, with 300,000 no par value common shares authorized. During 20X4, the corporation had the following share transactions:

$\begin{array}{|l|l|}\hline \text { Jan } 4 & \text { Issued } 120,000 \text { shares at } \$ 10 \text { per share } \\\hline \text { Mar } 8 & \text { Issued } 40,000 \text { shares at } \$ 11 \text { per share } \\\hline \text { May } 17 & \text { Purchased } 15,000 \text { shares at } \$ 12 \text { per share and cancelled them } \\\hline \text { Jul } 6 & \text { Issued } 30,000 \text { shares at } \$ 13 \text { per share } \\\hline \text { Aug 27 } & \text { Issued } 10,000 \text { shares at } \$ 14 \text { per share } \\\hline\end{array}$

-The total amount in the common shares account at December 31, 20X4 is

A) $2,170,000
B) $2,007,250
C) $1,990,000
D) $2,016,250

Question 18

In calculating basic earnings per share, if the preferred shares are cumulative, the amount that should be deducted as an adjustment to the numerator is the

A) annual preferred dividend.
B) preferred dividends in arrears.
C) annual preferred dividends net of income tax.
D) preferred dividends in arrears net of income tax.

Question 19

Belson Ltd. was organized on January 1, 20X4, with 300,000 no par value common shares authorized. During 20X4, the corporation had the following share transactions:

$\begin{array}{|l|l|}\hline \text { Jan } 4 & \text { Issued } 120,000 \text { shares at } \$ 10 \text { per share } \\\hline \text { Mar } 8 & \text { Issued } 40,000 \text { shares at } \$ 11 \text { per share } \\\hline \text { May } 17 & \text { Purchased } 15,000 \text { shares at } \$ 12 \text { per share and cancelled them } \\\hline \text { Jul } 6 & \text { Issued } 30,000 \text { shares at } \$ 13 \text { per share } \\\hline \text { Aug 27 } & \text { Issued } 10,000 \text { shares at } \$ 14 \text { per share } \\\hline\end{array}$

-The total amount of contributed surplus at December 31, 20X4 is

A) $0
B) $26,250
C) $153,750
D) $180,000

Question 20

For accounting purposes, the most important section of the articles of incorporation is the description of

A) the types of shares to be issued.
B) the costs of issuing the shares.
C) the type of business to be conducted.
D) how the board of directors will be organized.

Question 21

Which of the following is eligible for dividends?

A) The number of shares of authorized.
B) The number of shares issued.
C) The number of shares outstanding.
D) The number of treasury shares.

Question 22

In 20X4, P Co declared dividends totaling $.52 per common share when earnings per share were $1.31 and its market price was 40 7/16. In 20X3, its dividends totaled $.46 per share, its earnings per share were $1.36 and its market price was 34 11/16. What was the computed dividend yield ratio for 20X4 and 20X3 respectively? (Rounded to nearest 1 decimal)

A) 1.8% and 1.9%
B) 1.3% and 1.3%
C) 1.7% and 1.3%
D) 2.1% and 2.3%

Question 23

Accounting entries associated with a cash dividend are usually made on which of the following dates?

A) Record date and payment date.
B) Payment date only.
C) Declaration date and record date.
D) Declaration date and payment date.

Question 24

All of the following are reasons a company would use employee stock options except?

A) They do not require any cash
B) They have no cost to the company
C) They align employee motivation to the shareholders' objectives
D) They increase the equity base of the company

Question 25

Spot Corporation declared a cash dividend on December 30, 20X1, payable on January 10, 20X2. A journal entry for the dividend was not made in December 20X1. What were the effects on the 20X1 ?nancial statements?

A) Retained earnings and liabilities were understated.
B) Retained earnings and liabilities were overstated.
C) Retained earnings was overstated and liabilities understated.
D) Retained earnings was overstated and cash understated.

Question 26

Which of the following is false about the dividend yield ratio?

A) Dividend yield ratio = Dividends per share/Market price per share
B) Measures the pro?t generated by each share for the shareholder based on the market price of the shares.
C) A low dividend yield is neither bad nor good by itself.
D) Dividend yield ratio = Market price per share/Dividends per share.

Question 27

Which of the following statements about stock option plans is false?

A) Offering excessive stock options to a company's managers reduces the likelihood they will not always act in the best interest of the investors.
B) Stock option plans are often a major part of an executive's compensation plan.
C) Stock options usually have a grant price equal to the market price of the share when the options are ?rst offered to the executives.
D) The holder of a stock option has an interest in a company's performance but not in the same manner as a shareholder.

Question 28

The statement of financial position of Warner Company showed the following data about its common shares: authorized shares, 100,000; outstanding shares, 55,000; and issued shares 60,000. What was the number of treasury shares?

A) 5,000
B) 30,000
C) 40,000
D) 45,000

Question 29

Some managers argue that since employee stock options are usually issued at an exercise price that is less than or equal to market value when they are granted, they have no value. However, generally accepted accounting principles require that they be recorded as compensation expense. The primary reason for this is:

A) To achieve proper matching.
B) The time value in the options creates economic value.
C) The entity must use employee stock options in order to compete for talent.
D) They are accepted by employees as compensation.

Question 30

Which of the following statements is false?

A) A share dividend has no impact on cash.
B) Repurchase of shares (treasury shares) and payment of cash dividends reduce cash flow from financing activities.
C) Issuance of preferred shares would increase cash from financing activities.
D) Repurchases of shares at prices lower than the average issue price result in profit for the issuing company.

Question 31

Assume the following shares outstanding: (1) Preferred shares, $3, cumulative, 1,000 shares with dividends in arrears 3 years, for 20X1, 20X2, and 20X3. (2) Common shares, 2, 000 shares. Total dividends declared in 20X4 were $30,000. What is the total amount of dividends to which common shareholders are entitled?

A) $18,000
B) $21,000
C) $27,000
D) $30,000

Question 32

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 ?scal year end.

Question 33

On January 1, Norton Inc. had total shareholders' equity as shown below when their shares were selling at $25 per share $$\begin{array} { | l | r | } \hline \text { Common shares } - 125,000 \text { shares issued and outstanding } & \$ 2,500,000 \\\hline \text { Retained earnings } & \underline { 4,000,000 } \\\hline \text { Total shareholders' equity } & \$ 6,500,000 \\\hline\end{array}$$ Assume the company declared and issued a 50% stock dividend. The effect of this dividend would:

A) Increase common shares by $1,250,000 and shares issued and outstanding by 62,500
B) Increase common shares by $1,250,000 with no change in the number of issued and outstanding shares
C) Leave total shareholders' equity unchanged but increase the number of shares issued and outstanding to 187,500
D) Reduce retained earnings by $2,000,000 and double the number of shares issued and outstanding

Question 34

On December 15, 20X2, the board of directors of Home Corporation declared a cash dividend, payable on January 8, 20X3, of $2 per share on the 100,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 20X2, Home Corporation should do which of the following?

A) Make no journal entry because the event had no effect on the corporation's ?nancial position until 20X3.
B) Decrease retained earnings $200,000 and increase liabilities $200,000.
C) Decrease retained earnings $200,000 and increase contributed capital $200,000.
D) Decrease cash $200,000 and decrease retained earnings $200,000.

Question 35

In 20X4, W Co had a dividend yield ratio of 0.3% and J.C. Co. reported a yield of 6.9%. What is the most likely reason for W Co's relatively low dividend yield in comparison to J.C. Co 's ratio?

A) W Co is paying little in dividends because it continues to grow through expansion of store locations ?nanced by operations.
B) W Co does not generate su?cient cash from operations to be able to pay a dividend.
C) W Co does not generate su?cient operating pro?t to support declaring a dividend.
D) W Co does not have su?cient retained earnings to support declaring a dividend.

Question 36

The dividend yield ratio

A) = Dividends per share/Earnings per share
B) measures the earnings generated by each share for the shareholder based on the market price of the shares.
C) should be considered bad if it is low.
D) = Market price per share/Dividends per share.

Question 37

Which of the following is false?

A) A low dividend yield is usually indicative of a growing company.
B) The lower the dividend yield, the less a company has distributed to investors as an immediate return.
C) Almost all investors want an immediate return on their investment through dividend distributions.
D) The dividend yield ratio is a measure of the immediate return investors are receiving from dividends stated as a percentage of market price.

Question 38

Slow, Inc., reported the following asset and liability balances at the ends of 20X1 and 20X2: $$\begin{array} { | l | r | r | } \hline & \underline { \mathbf { 2 0 X1 } } & \underline { \mathbf { 2 0 X 2 } } \\\hline \text { Total Assets } & \$ 80,000 & \$ 110,000 \\\hline \text { Total Liabilities } & 50,000 & 40,000 \\\hline \text { Cash } & 22,000 & 32,000 \\\hline\end{array}$$ During 20X2, cash dividends of $5,000 were declared and paid. Additional shares were issued for $15,000. What was the profit (or loss) for 20X2?

A) $30,000
B) $35,000
C) $40,000
D) $45,000

Question 39

The declaration and payment of a cash dividend does which of the following?

A) Reduces retained earnings and increases liabilities by the amount of the dividend.
B) Reduces retained earnings and increases contributed capital by the same amount.
C) Reduces assets and increases liabilities each by the amount of the dividend.
D) Reduces assets and retained earnings each by the amount of the dividend.

Question 40

The Basket Corporation has the following classes of shares: Preferred shares, $40, 1,000 shares issued and outstanding, non-cumulative. Common shares, 100,000 shares issued, 50,000 shares outstanding. In 20X1, Basket Corporation was incorporated. It paid no dividends in its first year of existence. In 20X2, the board of directors of Basket declared a total dividend of $180,000 to be paid to the holders of preferred and common shares. What was the amount of the dividend paid in 20X2 on each common share?

A) $1.80
B) $2.00
C) $2.80
D) $3.60

Question 41

Which of the following is true with regards to a stock dividend?

A) It results in a transfer of retained earnings to contributed capital.
B) It increases the number of shares outstanding and involves a pro rata reduction in the par value per share.
C) It is accounted for in the same manner as a stock split.
D) It does not require a journal entry.

Question 42

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

A) 100% stock dividend
B) 2 for 1 stock split
C) 2% stock dividend
D) $1 per share cash dividend

Question 43

A stock dividend results in a decrease in

A) current liabilities.
B) net earnings.
C) share capital.
D) retained earnings.

Question 44

The declaration of a stock dividend will

A) increase share capital.
B) change the total of shareholders' equity.
C) increase total liabilities.
D) increase total assets.

Question 45

On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?

A) Date of payment.
B) Date of record.
C) Date of declaration.
D) No liability is associated with a share dividend.

Question 46

Dividends in arrears on cumulative preferred shares

A) never have to be paid, even if common dividends are paid.
B) must be paid before common shareholders can receive a dividend.
C) should be recorded as a current liability until they are paid.
D) enable the preferred shareholders to share equally in corporate profit with the common shareholders.

Question 47

A stock dividend results in

A) the same ownership interest.
B) greater ownership interest.
C) less ownership interest.
D) increased total assets.

Question 48

A shareholder who receives a stock dividend would

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

Question 49

The effect of a stock dividend is to

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

Question 50

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.

Question 51

With respect to preferred shares, select the statement that is correct.

A) They must have a par value.
B) They are never issued without voting privileges.
C) They cannot exist unless there also are common shares.
D) They always provide for a ?xed payment to be made to the shareholders even for years when no dividends have been declared.

Question 52

The conversion feature on convertible preferred shares enables the shareholder to convert them to which of the following?

A) Common shares.
B) Cash.
C) Convertible bonds.
D) Products of the company.

Question 53

Wide World Corporation issued a 3-for-2 stock split (i.e., three new shares in exchange for each two old shares turned in) of its common shares which had a market value of $100 before the split. What dollar amount of retained earnings should be transferred to the common share account?

A) Market value before the split.
B) Market value after the split.
C) Half of the previous total amount in the common share account(s).
D) None should be transferred.

Question 54

Which of the following statements about a 2 for 1 stock split is not true?

A) The market value of the share will probably decrease.
B) A shareholder with 200 shares before the split owns 400 shares after the split.
C) Legal capital per share is reduced to half of what it was before the split.
D) Total share capital increases.

Question 55

One characteristic of a stock split is that it will

A) reduce retained earnings.
B) increase total share capital.
C) increase the total assets.
D) increase the number of shares.

Question 56

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

A) the fair value at the distribution date.
B) the average price paid by shareholders on total shares issued.
C) the fair value at the declaration date.
D) zero.

Question 57

Towson Inc. had 300,000 common shares before a stock split occurred and 600,000 shares after the stock split. The stock split was

A) 2 for 4.
B) 4 for 1.
C) 1 for 4.
D) 2 for 1.

Question 58

A stock split will

A) have no effect on retained earnings.
B) increase total share capital.
C) increase the total assets.
D) decrease the number of shares.

Question 59

Which of the following are the typical rights afforded to preferred shareholders?

A) A preference to receive dividends when declared by the board of directors after common shareholders receive their dividends.
B) A preference to receive the liquidation value of the assets as stated in the share contract after common shareholders receive their share.
C) The right to vote on major corporate issues including electing the board of directors.
D) A preferential right to receive dividend and a preference to receive the liquidation value of assets over common stock holders.

Question 60

Dunbar Inc. has 10,000 $2, non-cumulative preferred shares and 150,000 common shares issued at December 31, 20X2. What is the annual total dividend on the preferred shares?

A) $10,000
B) $20,000
C) $150,000
D) $300,000

Question 61

Albert Company reported the following statement of financial position amounts at December 31, 20X2: $$\begin{array} { | l | r | } \hline \text { Current assets } & \$ 70,000 \\\hline \text { Current liabilities } & 40,000 \\\hline \text { Long-term liabilities } & 90,000 \\\hline \text { Operational assets } & 200,000 \\\hline \text { Common shares (10,000 shares issued) } & 100,000 \\\hline\end{array}$$ What was the total amount of retained earnings on December 31, 20X2?

A) $20,000
B) $30,000
C) $40,000
D) $50,000

Question 62

Which of the following statements is true?

A) Retained earnings is an asset.
B) Retained earnings has a debit balance for a successful corporation.
C) Retained earnings represents the future dividend liability of the company.
D) Retained earnings represents the profit that has been earned by the company, less any dividends declared since the first day of operations.

Question 63

Which of the following transactions would not result in a decrease to retained earnings?

A) Declaration of a stock dividend
B) Correction of an error in which depreciation expense was understated in a prior period
C) Reacquisition of shares for less than the original issue price
D) Incurrence of a net loss for the period

Question 64

What is the difference between cumulative and non-cumulative preferred shares?

A) They both receive dividends in arrears.
B) Cumulative preferred shares' undeclared dividends accumulate each year until paid, while non-cumulative preferred shares' right to receive dividends is forfeited in any year that dividends are not declared.
C) Cumulative does not receive dividends but noncumulative does.
D) Cumulative preferred share's right to receive dividends is forfeited in any year that dividends are not declared. However, noncumulative preferred shares' undeclared dividends accumulate each year until paid.

Question 65

At the end of 20X5, the total assets of Dole Corporation were $90,000 and total liabilities were $50,000. The company has been in business five years and has earned an average profit of $4,000 per year during the five years. Total cash dividends of $8,000 were declared and paid. What was the total amount received for the shares issued by the company?

A) $28,000
B) $30,000
C) $40,000
D) $46,000

Question 66

Miter Corporation had a credit balance of $5,450,000 in its retained earnings account as of January 1, 20X4. During the year, Miter declared $250,000 in dividends, reported net earnings of $560,000 and comprehensive income of $750,000. The December 31 balance of retained earnings is:

A) $6,450,000
B) $6,200,000
C) $5,950,000
D) $5,760,000

Question 67

During 20X4 Laplante Manufacturing Company discovered that in 20X3 they had neglected to record depreciation expense of $12,500 on certain machinery. What journal entry would they make in 20X4? (ignore income tax effects)
a)
$\begin{array} { l l r r } & \text { Office equipment } & 12,500 & \\ & \text { Accumulated depreciation } & & 12,500 \\\end{array}$
b)
$\begin{array} { l l r r } & \text { Retained earnings } & 12,500 \\ & \text { Accumulated depreciation } && 12,500 & \\\end{array}$
c)
$\begin{array} { l l r r } & \text { Depreciation expense } & 12,500 \\& \text { Accumulated depreciation } && 12,500 & \\\end{array}$
d)
$\begin{array} { l l r r } & \text { Accumulated depreciation } & & 12,500 \\ & \text { Retained earnings } & &&12,500 \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 68

Which of the following preferred share characteristics give the shareholders the right to force the issuer to re-purchase the shares from them?

A) Convertible
B) Cumulative
C) Retractable
D) Redeemable

Question 69

Antaska Corp had the following activities during the year: $$\begin{array} { | l | r | } \hline \text { Proceeds from the sale of land } & \$ 300,000 \\\hline \text { Gain on sale of land } & \$ 50,000 \\\hline \text { Proceeds from the issue of common shares } & \$ 1,000,000 \\\hline \text { Declaration of 10\% stock dividend } & \$ 450,000 \\\hline \text { Repayment of mortgage outstanding on the sold land } & \$ 200,000 \\\hline \text { Granted stock options to employees } & \$ 50,000 \\\hline \text { Interest paid } & \$ 22,500 \\\hline \text { Dividends paid } & \$ 10,000 \\\hline\end{array}$$
What was Antaska's cash flow from financing activities for the year?

A) $767,500 inflow
B) $790,000 inflow
C) $800,000 inflow
D) $740,000 inflow

Question 70

Bateman Company reported total shareholders' equity of $58,000 on its statement of financial position dated December 31, 20X2. During 20X2, it reported a profit of $4,000, declared and paid a cash dividend of $2,000, and issued additional shares of $20,000. What was total shareholders' equity at January 1, 20X2?

A) $16,000
B) $34,000
C) $36,000
D) $38,000

Question 71

What type of preferred share is entitled to dividends above its speci?ed dividend if the common shares receive excess dividends and must receive dividends in arrears before the common dividends can be declared?

A) Cumulative and participating
B) Convertible and participating
C) Redeemable and participating
D) Redeemable and cumulative

Question 72

Dividends in arrears on cumulative preferred shares

A) are considered to be a non-current liability.
B) are considered to be a current liability.
C) only occur when preferred dividends have been declared.
D) should be disclosed in the notes to the financial statements.

Question 73

At January 1, 20X4, Clare Corporation had outstanding capital shares as shown below. During December, 20X4, it declared and paid cash dividends of $48,000 to the preferred shareholders. (1) Common shares--100,000 shares outstanding (2) Preferred shares--20,000 shares outstanding, $0 .80 cumulative. The shares were issued at a price of $15 per share. How many years were the preferred dividends in arrears?

A) One year.
B) Two years.
C) Three years.
D) Four years.

Question 74

Before the journal entry to record income tax and before the closing entries were recorded at the end of the accounting period (December 31, 20X4), the following data were taken from the accounts of Buynow Corporation: $$\begin{array} { | l | r | } \hline \text { Capital shares (20,000 shares issued) } & \$ 215,000 \\\hline \text { Retained earnings, balance December 31, 20X3 } & 80,000 \\\hline \text { Revenues earned during 20X4 } & 400,000 \\\hline \text { Expenses (excluding income tax) incurred during 20X4 } & 320,000 \\\hline \text { Cash dividends declared and paid (during 20X4) } & 30,000 \\\hline \text { Treasury shares (1,000 shares at cost) } & 17,000 \\\hline \text { Average income tax rate, 30\% } & \\\hline\end{array}$$ What is the total amount of shareholders' equity that should be reported on the statement of financial position dated December 31, 20X4?

A) $96,000
B) $128,000
C) $300,000
D) $304,000

Question 75

All of the following are normally found in a corporation's shareholders' equity section except

A) dividends in arrears.
B) common shares.
C) share capital.
D) retained earnings.

Question 76

Cosby Inc. has 10,000, $5, cumulative preferred shares at December 31, 20X4. If the board of directors declares a $40,000 annual dividend in 20X4,

A) the company will still owe the preferred shareholders $10,000 and should record a dividend payable in this amount.
B) the company will owe the preferred shareholders nothing further.
C) the $10,000 will be disclosed as dividends in arrears in the notes to the ?nancial statements.
D) the company still has to pay the preferred shareholders $50,000, regardless of what amount was declared.

Question 77

The type of preferred share that can be bought back by the company at a speci?ed time and price is a

A) cumulative preferred share.
B) convertible preferred share.
C) redeemable preferred share.
D) nonparticipating preferred share.

Question 78

Retained earnings are occasionally restricted

A) to set aside cash for dividends.
B) to keep the legal capital associated with share capital intact.
C) due to contractual loan restrictions.
D) if preferred dividends are in arrears.

Question 79

Slick Willie Inc. had the following shares outstanding during 20X3: (1) Preferred shares, $3, cumulative, 1,000 shares with dividends in arrears for 20X1 and 20X2. (2) Common shares, 2,000 shares. The total dividends declared for the current year were $21,000. What is the total amount of dividends to which the preferred shareholders are entitled?

A) $3,000
B) $6,000
C) $9,000
D) $12,000

Question 80

Which of the following transactions would not result in an increase to retained earnings?

A) Correction of an error in which expenses were overstated in a previous year.
B) Declaring a 3-for-1 stock split
C) Redemption of shares for less than the original issue price.
D) Earning income during the year