Question 1

Jacquet Wholesale Merchandise Inc. had 40,000 shares of 6%, CHF20 par value preference shares and 30,000 shares of CHF25 Par value ordinary shares outstanding throughout 2014. Assuming that total dividends declared in 2014 were $70,000 and that preference shares are not cumulative, ordinary shareholders should receive total 2014 dividends of

Accepted Answer

The answer of Jacquet Wholesale Merchandise Inc. had 40,000 shares...

Question 2

Restricting retained earnings for the cost of treasury shares purchased is a

Accepted Answer

Restricting retained earnings for the cost of treasury shares purchased is a legal restriction because it is required by law. According to the International Financial Reporting Standards (IFRS), when a company repurchases its own shares, the cost should be deducted from equity (retained earnings) rather than being treated as an expense. This is to ensure that the financial statements reflect the true economic impact of the transaction. Therefore, companies are legally required to restrict their retained earnings for the cost of treasury shares purchased.

Question 3

On December 1, 2013, the Board of directors of Dew Laurintis Company declared a €.60 per share dividend payable on January 3, 2014 to shareholders of record on December 16. The company had 500,000 shares authorized and 225,000 shares issued and outstanding. The journal entry made on December 1, 2013 will

Accepted Answer

The declaration of a dividend reduces the amount of retained earnings, which is a component of equity. The total amount of the dividend to be paid is €135,000 (500,000 authorized shares x €.60 dividend per share x 225,000 outstanding shares), and this amount will be recorded as a liability until the dividend is paid on January 3. Therefore, the journal entry made on December 1, 2013 will decrease retained earnings (a component of equity) by €135,000, which is the amount of the dividend declared.

Question 4

Irwin, Inc. had 200,000 ordinary shares outstanding before a share split occurred, and 400,000 shares outstanding after the share split. The share split was

Accepted Answer

A 2-for-1 share split means that for every one share held, two new shares are issued, effectively doubling the number of shares outstanding. Therefore, in this case, 200,000 shares were split into 400,000, which is consistent with a 2-for-1 share split.

Question 5

On December 1, 2013, the Board of directors of Dew Laurintis Company declared a €.60 per share dividend payable on January 3, 2014 to shareholders of record on December 16. The company had 500,000 shares authorized and 225,000 shares issued and outstanding. The journal entry made on January 3, 2014 will

Accepted Answer

The journal entry on January 3, 2014, will record the payment of the dividend, which decreases cash (an asset) and decreases dividends payable (a liability) by €135,000 (225,000 shares x €.60 per share).

Question 6

Turquoise and Topaz Sisters had retained earnings of $20,000 on the statement of financial position but disclosed in the footnotes that $2,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends?

Accepted Answer

Retained earnings available for dividends = Retained earnings - Restricted retained earnings - Appropriated retained earnings= $20,000 - $2,000 - $1,000= $17,000

Question 7

Jacquet Wholesale Merchandise Inc. had 40,000 shares of 6%, CHF20 par value preference shares and 30,000 shares of CHF25 Par value ordinary shares outstanding throughout 2014. These data apply to each of the independent situations below. Total dividends declared in 2014 were $30,000. The preference shares are cumulative and no dividends were paid in 2012 or 2013. The amount of dividends in arrears at December 31, 2014 is

Accepted Answer

The answer of Jacquet Wholesale Merchandise Inc. had 40,000 shares...

Question 8

Jacquet Wholesale Merchandise Inc. had 40,000 shares of 6%, CHF20 par value preference shares and 30,000 shares of CHF25 Par value ordinary shares outstanding throughout 2014. Total dividends declared in 2014 were $70,000. The preference shares are cumulative. No dividends were paid in 2013. The ordinary shareholders should receive total 2014 dividends of

Accepted Answer

The answer of Jacquet Wholesale Merchandise Inc. had 40,000 shares...

Question 9

The following selected amounts are available for Sanders Company.  What is its ending retained earnings balance?

Accepted Answer

The answer of The following selected amounts are available for...

Question 10

If preference shares are non-cumulative,

Accepted Answer

Non-cumulative preference shares do not accumulate unpaid dividends, meaning if a dividend is not declared in a given year, it is not owed in the future.

Question 11

Bellingham Inc. discovered in early 2014 that it had overstated depreciation expense reported on its 2013 income statement. How would this correction of an error be handled?

Accepted Answer

The correction of the error should be made by adjusting the beginning balance of retained earnings as of December 31, 2013. This will correctly reflect the impact of the error on prior periods and will ensure that the 2014 financial statements are accurate. Option A would address the error in 2014 only and not correct the prior period financial statements. Option B is incorrect because a correction is needed. Option C would not accurately reflect the impact of the error on prior periods.

Question 12

Which of the following items would increase the retained earnings balance?

Accepted Answer

A prior period adjustment for understatement of net income would increase retained earnings because it corrects an error from a previous period, effectively increasing the net income reported and thus increasing retained earnings.

Question 13

Franklin, Inc. declares a 10% ordinary share dividend when it has 40,000 ordinary shares with a $10 par value outstanding. If the market value of $24 per share is used, the amounts debited to Retained Earnings and credited to Share Premium-Ordinary are

Accepted Answer

The answer of Franklin, Inc. declares a 10% ordinary share...

Question 14

Jacquet Wholesale Merchandise Inc. had 40,000 shares of 6%, CHF20 par value preference shares and 30,000 shares of CHF25 Par value ordinary shares outstanding throughout 2014. Assuming that total dividends declared in 2014 were $184,000 and that the preference shares are cumulative with two years' dividends in arrears on December 31, 2014, the preference shareholders should receive total 2014 dividends totaling

Accepted Answer

First, we need to calculate how much of the total dividends declared in 2014 should be allocated to the preference shares.

The preference shares have a par value of CHF20 and a dividend rate of 6%, so the annual dividend per preference share is CHF1.20 (CHF20 x 0.06).

There are 40,000 preference shares outstanding, so the total annual dividend payable on the preference shares is CHF48,000 (CHF1.20 x 40,000).

However, the preference shares are cumulative and have two years' dividends in arrears as of December 31, 2014. This means that the preference shareholders are entitled to receive the current year's dividend as well as the two years' worth of dividends that have not been paid yet.

Therefore, the total amount of dividends payable to the preference shareholders in 2014 is CHF144,000 (CHF48,000 x 3).

The remaining CHF40,000 of dividends declared in 2014 would be allocated to the ordinary shareholders.

Question 15

Assuming that there are no dividends in arrears, how are total dividends allocated between ordinary shares and preference shares?

Accepted Answer

Preference shareholders have the right to receive their required dividends before any dividends can be paid to ordinary shareholders. Therefore, assuming there are no dividends in arrears, the required annual dividend for preference shares must be paid first. Any remaining dividends can then be allocated to ordinary shareholders.

Question 16

On December 31, 2014, Springer, Inc. has 3,000 shares of 5% $100 par value cumulative preference shares and 45,000 ordinary shares with a $10 par value outstanding. On December 31, 2014, the directors declare a $15,000 cash dividend. The entry to record the declaration of the dividend would include

Accepted Answer

The entry to record the declaration of the dividend would include a credit to Dividends Payable, which is a liability account. Therefore, the correct choice is D. Choice A is incorrect because the credit would be to Retained Earnings only after the dividend has been paid. Choice B is incorrect because it is only a note in the financial statements and not an actual entry. Choice C is incorrect because it would decrease the Share Capital-Ordinary account, which is not appropriate for recording dividends.

Question 17

On December 1, 2013, the Board of directors of Dew Laurintis Company declared a €.60 per share dividend payable on January 3, 2014 to shareholders of record on December 16. The company had 500,000 shares authorized and 225,000 shares issued and outstanding. The journal entry made on declaration date will include

Accepted Answer

The declaration of a dividend creates a liability, so the entry would include a debit to Cash Dividends (or Dividends Declared) for €135,000 (225,000 shares x €.60 per share).

Question 18

Shannon Manufacturing declared a 10% share dividend when it had 300,000 ordinary shares with a $3 par value outstanding. The market price per share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to

Accepted Answer

The answer of Shannon Manufacturing declared a 10% share dividend...

Question 19

All of the following may decrease the retained earnings balance except

Accepted Answer

A prior period adjustment for understatement of net income would increase retained earnings, not decrease it.

Question 20

EI Toro Manufacturing Inc. declared a 20% share dividend when it had 150,000 ordinary shares (€5 par value) outstanding. The market price per share was €8 on the declaration date. The entry to record the dividend declaration included a credit to

Accepted Answer

The entry to record the dividend declaration includes a credit to Ordinary Share Dividends Distributable for the par value of the additional shares to be issued, which is 20% of 150,000 shares at €5 par value, totaling €150,000.

Quiz 11: Corporations: Organization, Share Transactions, Dividends, and Retained Earnings

Restricting retained earnings for the cost of treasury shares purchased is a

Irwin, Inc. had 200,000 ordinary shares outstanding before a share split occurred, and 400,000 shares outstanding after the share split. The share split was

The following selected amounts are available for Sanders Company. What is its ending retained earnings balance?

If preference shares are non-cumulative,

Bellingham Inc. discovered in early 2014 that it had overstated depreciation expense reported on its 2013 income statement. How would this correction of an error be handled?

Which of the following items would increase the retained earnings balance?

Franklin, Inc. declares a 10% ordinary share dividend when it has 40,000 ordinary shares with a $10 par value outstanding. If the market value of $24 per share is used, the amounts debited to Retained Earnings and credited to Share Premium-Ordinary are

Assuming that there are no dividends in arrears, how are total dividends allocated between ordinary shares and preference shares?

On December 31, 2014, Springer, Inc. has 3,000 shares of 5% $100 par value cumulative preference shares and 45,000 ordinary shares with a $10 par value outstanding. On December 31, 2014, the directors declare a $15,000 cash dividend. The entry to record the declaration of the dividend would include

Shannon Manufacturing declared a 10% share dividend when it had 300,000 ordinary shares with a $3 par value outstanding. The market price per share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to

All of the following may decrease the retained earnings balance except

EI Toro Manufacturing Inc. declared a 20% share dividend when it had 150,000 ordinary shares (€5 par value) outstanding. The market price per share was €8 on the declaration date. The entry to record the dividend declaration included a credit to