Question 1

An adjusting entry is not required if the estimated payments made throughout the year are more than the actual taxes due.

Accepted Answer

An adjusting entry is required to account for the overpayment and adjust the tax expense and liability accounts accordingly.

Question 2

Unappropriated Retained Earnings will decrease because of net losses, declarations of cash or stock dividends, and appropriations.

Accepted Answer

Unappropriated Retained Earnings represent the portion of net income that has not been distributed as dividends or used for appropriations. Therefore, if a company experiences a net loss or declares dividends or appropriations, the Unappropriated Retained Earnings will decrease.

Question 3

A stock split requires no formal journal entry and may be recognized simply by a memorandum notation in the general journal and in the appropriate capital stock accounts.

Accepted Answer

A stock split does not affect the total equity of the company, only the number of outstanding shares and the par value per share, so no formal journal entry is required. A memorandum notation in the general journal and in the appropriate capital stock accounts is sufficient to reflect the split.

Question 4

A stock dividend will reduce the amount in the retained earnings section of stockholders' equity, while increasing the amount in the paid-in capital section.

Accepted Answer

A stock dividend is a distribution of additional shares to existing shareholders. This means that the value of the company's retained earnings is being distributed to shareholders in the form of additional shares, which will decrease the amount in the retained earnings section of stockholders' equity. However, since the company is not actually paying any cash to shareholders, the amount in the paid-in capital section of stockholders' equity will increase to reflect the additional shares issued.

Question 5

The ending balance of the retained earnings account on the statement of retained earnings is the same amount that appears in the stockholders' equity section of the balance sheet.

Accepted Answer

This is because the ending balance of the retained earnings account represents the cumulative earnings that have been kept by the company rather than paid out as dividends. This amount is included in the total stockholders' equity, which is reported on the balance sheet.

Question 6

A statement of retained earnings is used to explain the change in the amount of retained earnings between two successive balance sheet dates.

Accepted Answer

A statement of retained earnings is indeed used to explain the change in the amount of retained earnings between two successive balance sheet dates.

Question 7

Stock Dividends Distributable is reported as an addition to common stock in the stockholders' equity section of the balance sheet.

Accepted Answer

This statement is true. Stock Dividends Distributable represents the amount of dividends that have been declared by a company's board of directors but have not yet been paid out to shareholders. It is reported as an addition to common stock in the stockholders' equity section of the balance sheet until it is paid out.

Question 8

Generally, a stock dividend is declared to improve the marketability of the shares by reducing the market price per share, increasing the number of shares outstanding, and making it possible to have a wider ownership of the stock.

Accepted Answer

A stock dividend does indeed increase the number of shares outstanding, which in turn reduces the market price per share and may make the stock more appealing to a wider range of investors. However, it is worth noting that a stock dividend does not actually generate any new value for investors; it merely changes the way that value is distributed among shareholders.

Question 9

Appropriation of retained earnings has been used primarily to limit the availability of retained earnings for paying stockholders' dividends.

Accepted Answer

Appropriation of retained earnings involves setting aside a portion of retained earnings for specific purposes such as investment in research and development, debt repayment or reserves. This reduces the amount of retained earnings available for paying dividends to stockholders. Therefore, it is true that appropriation of retained earnings has been used primarily to limit the availability of retained earnings for paying stockholders' dividends.

Question 10

A stock dividend may be distributed even if the company is short of cash.

Accepted Answer

This is because stock dividends are distributions of additional shares of stock to existing shareholders, rather than actual cash payments. Therefore, the company does not need to have cash on hand to issue a stock dividend. However, it is worth noting that companies typically only issue stock dividends if they believe they have the financial strength to do so and that it will benefit shareholders.

Question 11

For a stock dividend of less than 20 to 25% of the outstanding shares, Stock Dividends is debited for the par value of the stock to be distributed.

Accepted Answer

For a stock dividend of less than 20 to 25%, the Stock Dividends account is debited for the fair market value of the stock, not the par value.

Question 12

Three dates are involved in the declaration and payment of dividends-the date of declaration, the date of record, and the date of payment.

Accepted Answer

This statement is true. The date of declaration is the day on which the company announces its intention to pay dividends, the date of record (also known as the ex-dividend date) is the day on which shareholders must be on record in order to receive the dividend, and the date of payment is the day on which the actual payment is made to eligible shareholders.

Question 13

If the corporation has a net loss for the period, the closing entry will include a debit to Income Summary and a credit to Retained Earnings.

Accepted Answer

If the corporation has a net loss for the period, the closing entry will include a debit to Retained Earnings and a credit to Income Summary. This is because the net loss is subtracted from the beginning balance of Retained Earnings to get the ending balance, and Income Summary is used to summarize the revenues and expenses for the period.

Question 14

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

Accepted Answer

This statement correctly describes a stock split.

Question 15

A proportionate distribution of shares of a corporation's own stock to its stockholders is called a property dividend.

Accepted Answer

A proportionate distribution of a corporation's own stock to its stockholders is called a stock dividend, not a property dividend. A property dividend involves distributing assets other than cash or stock.

Question 16

If a balance sheet is prepared between the date of declaration and date of payment, dividends payable accounts are reported as current liabilities.

Accepted Answer

Dividends payable accounts represent a current obligation that will be paid within one year of the balance sheet date, so they are classified as current liabilities on the balance sheet. If the balance sheet is prepared between the date the dividends are declared and the date they are paid, the amount of dividends payable at that date will be included as a current liability.

Question 17

Corporations can legally declare cash dividends only if the retained earnings balance is sufficient to cover the dividends.

Accepted Answer

This is true. Corporations cannot legally declare cash dividends unless they have enough retained earnings to cover them. This is to ensure that the company is not distributing more cash than it can afford and potentially jeopardizing its financial stability.

Question 18

Stock dividends typically are stated as a percentage of common stock outstanding.

Accepted Answer

Stock dividends are often stated as a percentage of the total number of shares outstanding, not a fixed dollar amount.

Question 19

Even if there are both appropriated and unappropriated retained earnings, the balances are combined when preparing the statement of retained earnings.

Accepted Answer

The answer of Even if there are both appropriated and...

Question 20

When an appropriation of retained earnings is made, total retained earnings is decreased.

Accepted Answer

Appropriating retained earnings does not decrease the total retained earnings; it simply reclassifies a portion of retained earnings for a specific purpose, leaving the total unchanged.

Quiz 21: Corporations: Earnings, Taxes, Distributions, and the Retained Earnings Statement