Question 1

The board of directors of Lark Corporation declared a cash dividend of $3.50 per share on 57,000 shares of common stock on June 14,20x5.The dividend is to be paid on July 15,20x5,to shareholders of record on July 1,20x5.The effects of the entry to record the declaration of the dividend on June 14,20x5,are to

Accepted Answer

When the board of directors declares a cash dividend, it creates a liability for the company. This is because the company will be paying out cash to shareholders on a future date, and this creates an obligation for the company to pay. Therefore, the declaration of the dividend will decrease stockholders' equity (since cash is being paid out) and increase liabilities (since the company now has an obligation to pay the dividend).

Question 2

The board of directors of Meadow Corporation declared a cash dividend on January 18,20x5,to be paid on February 18,20x5,to shareholders holding the stock on February 2,20x5.Given these facts,the date February 2,20x5,is referred to as the

Accepted Answer

The date of February 2,20x5 is referred to as the date of record, as it is the date on which the company determines which shareholders are eligible to receive the dividend.

Question 3

The board of directors of Lark Corporation declared a cash dividend of $3.50 per share on 57,000 shares of common stock on June 14,20x5.The dividend is to be paid on July 15,20x5,to shareholders of record on July 1,20x5.
-The proper entry to be recorded on July 15,20x5 is,

Accepted Answer

The proper entry to be recorded on July 15, 20x5 is to debit dividends payable for $199,500 (57,000 shares x $3.50 per share) and credit cash for the same amount. Option B correctly reflects this transaction. Option A credits dividends payable, which is incorrect because dividends payable is a liability account and should be debited. Option C debits retained earnings, which is incorrect because this account does not change until after the dividend is paid. Option D debits common stock, which is also incorrect because the payment of a dividend does not affect the common stock account.

Question 4

On June 1,20x5,Jomax Corporation had 60,000 shares of $10 par value common stock outstanding.On June 2,20x5,Jomax declared a 40 percent stock dividend to be distributed on July 5,20x5,to shareholders of record on June 15,20x5.What amount of retained earnings should be transferred to contributed capital because of this dividend?

Accepted Answer

A stock dividend is a distribution of additional shares of stock to existing shareholders, and therefore does not result in a decrease in retained earnings. Instead, the par value per share of the new stock issued as a dividend is transferred from retained earnings to contributed capital. In this case, the dividend is 40%, so the number of new shares issued would be 40% of the current outstanding shares, or 24,000 shares (60,000 x 0.40). The par value per share is $10, so the amount transferred from retained earnings to contributed capital would be $10 x 24,000 shares, or $240,000 (option B). The market value of the stock is not relevant for this calculation.

Question 5

Use the following information to answer the question below. On January 1,20x5,Falcon Corporation had 40,000 shares of $10 par value common stock issued and outstanding.All 40,000 shares had been issued in a prior period at $17 per share.On February 1,20x5,Falcon purchased 3,100 shares of treasury stock for $19 per share and later sold the treasury shares for $26 per share on March 2,20x5.
What amount of gain due to these treasury stock transactions should be reported on the income statement for the year ended December 31,20x5 ?

Accepted Answer

Gains or losses on treasury stock transactions are not reported on the income statement. Instead, they are accounted for directly in equity, affecting the balance in the treasury stock account and additional paid-in capital.

Question 6

According to generally accepted accounting principles,treasury stock usually should be recorded at

Accepted Answer

Treasury stock should be recorded at cost, which is the amount paid to repurchase the shares from the market. This cost includes any direct and indirect expenses incurred to acquire the shares, such as brokerage fees and taxes. Recording treasury stock at original issue cost or par/stated value is incorrect because these values represent the price at which the shares were initially issued, and treasury stock represents shares that have been repurchased by the company. Recording treasury stock at net realizable value is also incorrect because this value represents the amount the company expects to receive from selling the shares, which may not be relevant in the context of treasury stock.

Question 7

A corporation should account for the declaration of a 10 percent stock dividend by

Accepted Answer

When a corporation declares a stock dividend, it transfers from retained earnings to contributed capital an amount equal to the market value of the dividend shares. This reflects the distribution of additional shares to shareholders without receiving any new investment in return, effectively transferring part of the company's earnings to its capital base.

Question 8

Which of the following is not true about a 35 percent stock dividend?

Accepted Answer

The market value of the stock is not needed to record a stock dividend. Instead, a stock dividend involves transferring an amount from retained earnings to contributed capital, and it does not affect the market value per share or the par value per share.

Question 9

The entry to record the declaration of a cash dividend will

Accepted Answer

The declaration of a cash dividend reduces working capital because it increases current liabilities (dividends payable) without increasing current assets, thereby reducing the difference between current assets and current liabilities.

Question 10

A corporation records a dividend-related liability

Accepted Answer

A corporation records a dividend-related liability on the declaration date, which is when the board of directors declares the dividends to be paid out to shareholders. This liability represents the obligation of the corporation to pay the dividends to the shareholders on the payment date.

Question 11

Use the following information to answer the question below. On January 1,20x5,Falcon Corporation had 40,000 shares of $10 par value common stock issued and outstanding.All 40,000 shares had been issued in a prior period at $17 per share.On February 1,20x5,Falcon purchased 1,000 shares of treasury stock for $19 per share and later sold the treasury shares for $26 per share on March 2,20x5.
The entry to record the sale of the treasury shares on March 2,20x5 is

Accepted Answer

The answer of Use the following information to answer the...

Question 12

The board of directors of Lark Corporation declared a cash dividend of $3.50 per share on 57,000 shares of common stock on June 14,20x5.The dividend is to be paid on July 15,20x5,to shareholders of record on July 1,20x5.The proper entry to be recorded on June 14,20x5 is,

Accepted Answer

The answer of The board of directors of Lark Corporation...

Question 13

The board of directors of Lark Corporation declared a cash dividend of $3.50 per share on 57,000 shares of common stock on June 14,20x5.The dividend is to be paid on July 15,20x5,to shareholders of record on July 1,20x5.
-The effects of the entry to record the payment of the dividend on July 15,20x5,are to

Accepted Answer

The payment of a dividend decreases liabilities (dividends payable) and decreases assets (cash) because the company is paying out cash to its shareholders.

Question 14

Which of the following is the appropriate entry to record the declaration of cash dividends?

Accepted Answer

The appropriate entry to record the declaration of cash dividends is to credit the Dividend Payable account and debit the Retained Earnings account. Option C contains the correct transaction code (TB2176) and the appropriate account numbers for the Dividend Payable (9011) and Retained Earnings (5448) accounts.

Question 15

At the beginning of 20x5,Spur Corporation had 68,000 shares of $10 par value common stock issued and outstanding.During January 20x5,Spur declared and distributed a 10 percent stock dividend.The market value of Spur's stock was $25 throughout the month of January.The entry to be recorded for the declaration of stock dividend is

Accepted Answer

The answer of At the beginning of 20x5,Spur Corporation had...

Question 16

On the balance sheet,treasury stock owned by the company is classified properly as

Accepted Answer

Treasury stock owned by the company is a contra-stockholders' equity account as it represents the amount of the company's own stock that has been repurchased and is no longer outstanding. It is deducted from the total stockholders' equity on the balance sheet, making it a contra-account.

Question 17

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

Accepted Answer

In a 2-for-1 stock split, the total contributed capital does not increase. The split simply doubles the number of shares while halving the par value per share, without changing the company's overall market capitalization or the total contributed capital.

Question 18

On May 1,20x5,Ironwood Corporation had 200,000 shares of $10 par value common stock outstanding with a market value of $16 per share.On May 2,20x5,Ironwood announced a 4-for-1 stock split.After the split,the par value of the stock

Accepted Answer

In a stock split, the par value per share is adjusted so that the total par value remains the same. Since Ironwood Corporation executed a 4-for-1 stock split, the new par value per share is $10 divided by 4, which equals $2.50 per share.

Question 19

The net effects on a corporation of the declaration and payment of a cash dividend are to

Accepted Answer

When a corporation declares and pays a cash dividend, it decreases its cash assets, which results in a decrease in assets. Additionally, the payment of dividends reduces the retained earnings portion of stockholders' equity, resulting in a decrease in stockholders' equity. Therefore, the correct answer is (C) decrease assets and decrease stockholders' equity.

Question 20

On July 1,20x5,Blaylock Corporation had 40,000 shares of its $100 par value common stock outstanding.On July 2,20x5,Blaylock declared a 15 percent stock dividend to be distributed on August 6,20x5,to shareholders of record on July 16,20x5.What amount of retained earnings should be transferred to contributed capital because of this dividend?

Accepted Answer

When a stock dividend is declared, the amount transferred to contributed capital is based on the market value of the stock at the date of declaration, not distribution. Therefore, the correct option is to calculate the market value of the stock at the date of declaration (July 2,20x5) and multiply it by the number of dividend shares to determine the amount of retained earnings transferred to contributed capital.

Quiz 12: Stockholders Equity