Question 1

Which of the following below correctly states the sequence of dates related to dividends on common stock?
A) Board of directors date, Date of declaration, Date of payment
B) Declaration date, Date of record, Date of payment
C) Date of record -Declaration date, Date of payment
D) Declaration date, Date of Payment, Date of distribution

Accepted Answer

The sequence of dates related to dividends on common stock is declaration date (when the board of directors announces the amount and payment date of the dividend), date of record (the date on which shareholders must hold the stock to be eligible to receive the dividend), and date of payment (when the dividend is actually paid out to eligible shareholders). Choice A is incorrect because it lists "board of directors date" instead of "declaration date". Choice C is partially correct but missing the declaration date. Choice D is incorrect because it lists "date of distribution" instead of "date of payment".

Question 2

On the date of record for a dividend,the company:
A) debits Dividends and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.

Accepted Answer

The record date (or date of record)is the cut-off date for determining the specific stockholders to be paid the dividend.No journal entry is recorded on this date.

Question 3

Which of the following statements about the declaration and payment of cash dividends is correct?
A) Declaration and payment of cash dividends will reduce the amount of net income.
B) Declaration and payment of cash dividends will not reduce the Retained Earnings balance.
C) Declaration and payment of cash dividends will reduce the amount of cash available to invest in assets.
D) Declaration and payment of cash dividends is calculated on the amount of shares of stock issued, not the amount of shares outstanding.

Accepted Answer

Declaration and payment of cash dividends will reduce the amount of cash available to invest in assets because the cash is being distributed to shareholders instead of being retained by the company. Choice A is incorrect because net income is calculated before dividend payments are made. Choice B is incorrect because payment of cash dividends reduces the Retained Earnings balance on the balance sheet. Choice D is incorrect because cash dividends are calculated based on the number of shares outstanding, not the number of shares issued.

Question 4

The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:
A) increase total liabilities and decrease stockholders' equity.
B) increase total expenses and decrease assets.
C) increase total assets and increase stockholders' equity.
D) decrease total assets and decrease stockholders' equity.

Accepted Answer

The declaration and payment of a cash dividend reduce the company's cash balance (an asset account) and the retained earnings account (part of stockholders' equity). The reduction in both of these accounts leads to a decrease in total assets and a decrease in stockholders' equity, making option D the correct answer.

Question 5

Nova,Inc.is considering declaring a $100,000 cash dividend.Nova has a cash balance of $20,000 and Retained Earnings balance of $100,000.Nova should:
A) declare a cash dividend because it has enough Retained Earnings and cash.
B) declare a cash dividend because it has enough Retained Earnings.
C) not declare a cash dividend because it does not have enough Retained Earnings.
D) not declare a cash dividend because it does not have enough cash.

Accepted Answer

Nova, Inc. only has $20,000 in cash, which is not enough to pay a $100,000 dividend. Therefore, it should not declare the cash dividend.

Question 6

Typically,a profitable company that pays little or no dividends:
A) is a bad investment.
B) will reinvest profits which can lead to greater growth potential.
C) will experience relatively stable stock prices over time.
D) will appeal to investors who desire distributions of profit.

Accepted Answer

When a profitable company pays little or no dividends, it typically means they are reinvesting those profits to fuel further growth and expand the business. This can lead to greater growth potential in the long run. Investors who are looking for distributions of profit may not find this type of company appealing, but for those who prioritize long-term growth, it can be a good investment. Therefore, B is the best choice.

Question 7

On the payment date for a cash dividend,the company:
A) debits Dividends and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.

Accepted Answer

On the payment date for a cash dividend, the company debits its Dividends Payable account to reduce the liability for the dividend that it owes to its shareholders, and credits its Cash account to show the cash outflow for the dividend amount. Therefore, the correct choice is C.

Question 8

Lenders will sometimes impose dividend restrictions to:
A) prevent the corporation from paying out too much to stockholders.
B) try to limit available dividends.
C) prevent the corporation from paying out too much to other creditors.
D) ensure the lenders will receive more dividends than the stockholders.

Accepted Answer

Lenders might impose dividend restrictions to prevent the corporation from paying out too much to stockholders, which may reduce the money available to repay the debt to lenders. If the company pays out more dividends to shareholders, it will have fewer funds available to repay its debt obligations.

Question 9

Which of the following statements about when cash dividends can be paid is not correct?
A) The Retained Earnings account must have an accumulated balance sufficient to cover the amount of the dividends to be paid.
B) The Cash account must have a balance sufficient to pay the dividends.
C) The board of directors must have declared the dividend before it can be paid.
D) Loan covenants cannot restrict the payment of dividends.

Accepted Answer

Loan covenants can restrict the payment of dividends, especially if the company is not meeting certain financial ratios or if the loan agreement includes provisions that limit dividend payments. Therefore, statement D is not correct.

Question 10

Dividends Payable is recorded as a credit on the:
A) declaration date.
B) date of record.
C) date of payment.
D) last day of the fiscal year.

Accepted Answer

On the declaration date,the company's board of directors formally approves the dividend,thereby creating a legal liability for the corporation.The dividend is accounted for by increasing Dividends Payable with a credit and increasing a temporary account called Dividends with a debit.

Question 11

When does a corporation record an increase in Dividends Payable?
A) On the date of record
B) On the date of payment
C) On the declaration date
D) On the date of issuance

Accepted Answer

Dividends Payable are recorded on the declaration date, which is when the board of directors announces a dividend payment to be made to shareholders. The dividends payable represent the amount owed to shareholders and it is recorded as a liability on the company's balance sheet until the actual payment is made. Therefore, option C - on the declaration date - is the correct answer.

Question 12

On February 16,a company declares a 68¢ dividend to be paid on April 5.There are 950,000 shares of common stock issued and outstanding.The entry recorded by the company on April 5 includes a debit to:
A) A debit to Dividends Payable and a credit to Cash for $680,000.
B) A debit to Dividends and a credit to Dividends Payable for $646,000.
C) A debit to Dividends Payable and a credit to Cash for $646,000.
D) A debit to Dividends and a credit to Dividends Payable for $680,000.

Accepted Answer

The entry recorded by the company on April 5 includes a debit to Dividends Payable and a credit to Cash for the total amount of the dividend to be paid, which is 68¢ x 950,000 shares = $646,000. Therefore, choice C is the correct option. The other options either have debit and credit accounts reversed or include an incorrect amount.

Question 13

On February 16,a company declares a 34¢ dividend to be paid on April 5.There are 1,900,000 shares of common stock issued and outstanding.The entry recorded by the company on February 16 includes a debit to:
A) Dividends Payable and a credit to Cash for $680,000.
B) Dividends and a credit to Dividends Payable for $646,000.
C) Dividends Payable and a credit to Cash for $646,000.
D) Dividends and a credit to Dividends Payable for $680,000.

Accepted Answer

The answer of On February 16,a company declares a 34¢...

Question 14

Jay-Cee Corporation had 20,000 shares of $4 par value common stock outstanding on January 1.On January 20,the company purchased 2,000 of its stock for $16 per share.On July 3,the company reissued 1,000 of the shares at $20 per share.Jay-Cee uses the cost method to account for its treasury stock.Assume the company paid a dividend of $5 per share on August 3.What is the total amount of the dividends that would be paid to the common stockholders?
A) $95,000
B) $100,000
C) $90,000
D) $76,000

Accepted Answer

The company had 20,000 shares outstanding, repurchased 2,000 shares, leaving 18,000 shares. They reissued 1,000 shares, resulting in 19,000 shares outstanding. Dividends are paid on outstanding shares: 19,000 shares x $5 = $95,000.

Question 15

Which of the following would be the best investment?
A) A company that pays no dividends, but has substantial net income.
B) A company that pays substantial dividends, but whose earnings per share has been declining over the past several years.
C) A company whose stock price has increased steadily, but pays no dividends.
D) It depends on one's investment objectives.

Accepted Answer

The best investment choice depends on one's investment objectives, which may vary from person to person. Some investors may prioritize receiving regular income in the form of dividends and may therefore choose option B, while others may prioritize capital gains and opt for option C. Additionally, some investors may prioritize investing in profitable companies and choose option A, while others may prioritize investing in companies with strong growth potential and choose option C. Therefore, it is important to consider one's individual investment goals and risk tolerance before choosing the best investment option.

Question 16

Refurbish,Inc.reissued 1,000 shares of its treasury stock for $10,000.Prior to the reissuance,the Treasury Stock balance was $12,000,which included the $8,000 cost of the 1,000 shares reissued.After recording this transaction:
A) Treasury Stock will equal $4,000.
B) Treasury Stock will equal $2,000.
C) Additional Paid-in Capital will be increased by $12,000.
D) Cash will be decreased by $10,000.

Accepted Answer

After the reissuance, the Treasury Stock balance will be reduced by the amount received from the sale of the shares, which is $10,000. Therefore, the new Treasury Stock balance will be $2,000 ($12,000 - $10,000). The Additional Paid-in Capital account is not affected by the reissuance of treasury stock. Cash will be increased by $10,000 (not decreased) as a result of the sale.

Question 17

Walter Co.declared a dividend.On the payment date of the dividend,its:
A) assets decreased and its stockholders' equity decreased.
B) assets decreased and its liabilities decreased.
C) assets decreased and its stockholders' equity increased.
D) liabilities decreased and its common stock decreased.

Accepted Answer

On the payment date of the dividend, the company pays out cash, which decreases its assets, and the liability for the dividend is settled, which decreases its liabilities.

Question 18

On the declaration date,the company:
A) debits Dividends and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.

Accepted Answer

On the declaration date,the company's board of directors formally approves the dividend,thereby creating a legal liability for the corporation.That liability is recorded with a debit to Dividends and a credit to Dividends Payable.

Question 19

A company declared a $0.80 per share cash dividend.The company has 100,000 shares authorized,45,000 shares issued,and 42,000 shares of common stock outstanding.What is the journal entry to record the dividend declaration?
A) Debit Dividends and credit Dividends Payable for $36,000
B) Debit Dividends and credit Dividends Payable for $33,600
C) Debit Dividends Payable and credit Cash for $36,000
D) Debit Dividends Payable and credit Cash for $80,000

Accepted Answer

The dividend is paid on the outstanding shares, which are 42,000. Therefore, the dividend amount is 42,000 shares * $0.80 = $33,600. The journal entry is to debit Dividends and credit Dividends Payable for $33,600.

Question 20

Typically,a profitable company that pays relatively high dividends:
A) is an attractive investment for those seeking a steady income, like retired people.
B) will reinvest more profit which can lead to smaller growth potential.
C) will experience more growth in stock price over time.
D) is a bad investment.

Accepted Answer

A profitable company that pays relatively high dividends is an attractive investment for those seeking a steady income, like retired people. They can depend on the regular income stream generated by the dividends, making it a suitable investment for income-oriented investors. However, such companies may have lower growth potential than companies that reinvest their profits, which could impact future stock price growth.

Quiz 11: Reporting and Interpreting Stockholders Equity

Which of the following below correctly states the sequence of dates related to dividends on common stock?

On the date of record for a dividend,the company:

Which of the following statements about the declaration and payment of cash dividends is correct?

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

Nova,Inc.is considering declaring a $100,000 cash dividend.Nova has a cash balance of $20,000 and Retained Earnings balance of $100,000.Nova should:

Typically,a profitable company that pays little or no dividends:

On the payment date for a cash dividend,the company:

Lenders will sometimes impose dividend restrictions to:

Which of the following statements about when cash dividends can be paid is not correct?

Dividends Payable is recorded as a credit on the:

When does a corporation record an increase in Dividends Payable?

On February 16,a company declares a 68¢ dividend to be paid on April 5.There are 950,000 shares of common stock issued and outstanding.The entry recorded by the company on April 5 includes a debit to:

On February 16,a company declares a 34¢ dividend to be paid on April 5.There are 1,900,000 shares of common stock issued and outstanding.The entry recorded by the company on February 16 includes a debit to:

Which of the following would be the best investment?

Refurbish,Inc.reissued 1,000 shares of its treasury stock for $10,000.Prior to the reissuance,the Treasury Stock balance was $12,000,which included the $8,000 cost of the 1,000 shares reissued.After recording this transaction:

Walter Co.declared a dividend.On the payment date of the dividend,its:

On the declaration date,the company:

A company declared a $0.80 per share cash dividend.The company has 100,000 shares authorized,45,000 shares issued,and 42,000 shares of common stock outstanding.What is the journal entry to record the dividend declaration?

Typically,a profitable company that pays relatively high dividends: