Question 1

A corporation may issue a stock dividend for which of the following reasons?

Accepted Answer

A corporation may issue a stock dividend for several reasons, including wanting to increase permanent capital in the business, aiming to decrease the market value per share to make the stock more affordable and thus potentially more attractive to a broader base of investors, and being short of cash and therefore unable to pay a cash dividend. All these reasons contribute to the strategic financial management of the company.

Question 2

Which of the following is true about retained earnings?

Accepted Answer

Declaring cash dividends will decrease retained earnings because it reduces the amount of retained earnings available to the company.

Question 3

A dividend is declared by:

Accepted Answer

The board of directors is responsible for declaring dividends. They have the authority to make decisions on behalf of the corporation and are accountable to the stockholders. The president and CFO may provide recommendations or input, but it is ultimately up to the board to approve and declare dividends. Stockholders do not have the power to declare dividends; they can only receive them if they are declared by the board.

Question 4

The board of Bogswell,Inc.declared a $2 per share cash dividend on common stock.The corporation has 4,000 shares of common stock outstanding.The entry required to declare the dividend is:

Accepted Answer

The entry to declare a cash dividend debits Retained Earnings and credits Dividends Payable.

Question 5

A stock split will decrease total stockholders' equity and the number of shares of stock issued.

Accepted Answer

A stock split increases the number of shares of stock issued but decreases the value of each share proportionally, so total stockholders' equity remains the same.

Question 6

The declaration of a stock dividend was credited to Dividends Payable and debited to Retained Earnings.This error would cause:

Accepted Answer

The error causes liabilities to be overstated because Dividends Payable is a liability account, and the incorrect credit increases liabilities.

Question 7

Retained earnings represent past investments into the company.

Accepted Answer

Retained earnings represent the cumulative amount of net income that a company has retained, rather than distributed to shareholders as dividends, not past investments into the company.

Question 8

An exchange of one share of an old issue of stock for a multiple number of shares of a new issue of stock with reduced par value is known as a:

Accepted Answer

A stock split is when a company divides its existing shares into multiple shares to decrease the par value and increase liquidity. This results in shareholders receiving more shares for each share they own, but the overall value of their investment remains the same. A property dividend is when a company distributes assets other than cash, such as property or other goods, to its shareholders. A stock dividend is when a company distributes additional shares of stock to its shareholders, increasing the number of shares they own but not necessarily the value of their investment. A liquidating dividend is when a company distributes its assets to shareholders after it has been dissolved or has gone bankrupt.

Question 9

When a 10% stock dividend was declared,only the par value was recorded and the excess over par value was ignored.This error would cause:

Accepted Answer

A stock dividend does not affect total stockholders' equity; it only transfers amounts within equity accounts. Ignoring the excess over par value does not affect the overall equity balance, so none of the options are correct.

Question 10

Retained Earnings is reported as part of shareholders' equity on the balance sheet.

Accepted Answer

Retained Earnings is a component of shareholders' equity and is reported on the balance sheet.

Question 11

The retained earnings section after a two-for-one stock split will:

Accepted Answer

Retained earnings are profits that a company has earned but not distributed to its shareholders as dividends. A stock split does not affect the amount of retained earnings a company has. Therefore, the section for retained earnings would not change after a two-for-one stock split.

Question 12

Declaration of a cash dividend was recorded by debiting Operations Expense and crediting Cash.This error would cause:

Accepted Answer

The error understates net income because the dividend should have been recorded as a reduction in retained earnings, not as an expense.

Question 13

Gino's Corporation had 30,000 shares of $16 par value common stock outstanding with a market value of $30 per share.Gino announced a four-for-one stock split.After the split,the par value of the stock:

Accepted Answer

After a four-for-one stock split, the number of shares outstanding increases by a factor of 4 and the market value per share decreases by a factor of 4. The par value per share, however, typically remains the same. Therefore, the par value of Gino's Corporation's stock would remain at $16, but the market value would decrease to $7.50 per share ($30 divided by 4). However, none of the choices match this explanation exactly. The closest choice is B, which states that the par value is reduced to $4.00 per share. This is incorrect, as the par value should remain at $16.

Question 14

When a stock dividend is distributed,the account to be debited would be:

Accepted Answer

The account to be debited when a stock dividend is distributed is Stock Dividends Distributable. This account represents the portion of the company's retained earnings that is used to pay for the stock dividend. Once the dividend is paid, this account is cleared and the Common Stock and Paid-in Capital in Excess of Par Value accounts are credited.

Question 15

The payment of a cash dividend was debited to Retained Earnings and credited to Cash.This error would cause:

Accepted Answer

The answer of The payment of a cash dividend was...

Question 16

The date of record determines who receives the declared dividends.

Accepted Answer

The date of record is the date on which a shareholder must be officially registered and listed as an owner in order to receive the declared dividend. Therefore, it determines who receives the declared dividends.

Question 17

Common Stock Dividend Distributable is a liability account.

Accepted Answer

The answer of Common Stock Dividend Distributable is a liability...

Question 18

The payment of a cash dividend was recorded as payment to Miscellaneous Expense.This error would cause:

Accepted Answer