Question 1

The board of directors of Capstone Inc.declared a $0.60 per share cash dividend on its $1 par common stock.On the date of declaration,there were 50,000 shares authorized,20,000 shares issued,and 5,000 shares held as treasury stock.Assuming the dividends were declared on June 1,what is the entry on June 30 to record the payment of cash dividends?

Accepted Answer

The answer of The board of directors of Capstone Inc.declared...

Question 2

Retained Earnings represent a company's:

Accepted Answer

Retained Earnings are the cumulative net income of a company that has not been distributed to shareholders as dividends since the company started.

Question 3

When treasury stock is purchased,what is the effect on assets and stockholders' equity?

Accepted Answer

When treasury stock is purchased, cash (an asset) is used, decreasing assets, and treasury stock is recorded as a contra equity account, decreasing stockholders' equity.

Question 4

The Retained Earnings balance reported on the balance sheet typically is not affected by:

Accepted Answer

Retained Earnings is the cumulative amount of earnings that have been retained in the business after dividends have been paid out to shareholders. Stock splits do not have any effect on the Retained Earnings balance because they do not impact the total amount of earnings that the company has retained.

Question 5

Fashion,Inc.had a Retained Earnings balance of $12,000 at December 31,2015.The company had an average income of $7,500 over the next 3 years,and an ending Retained Earnings balance of $15,000 at December 31,2016.What was the total amount of dividends paid over the last three years?

Accepted Answer

The answer of Fashion,Inc.had a Retained Earnings balance of $12,000...

Question 6

Crossroads Mall had 100,000 outstanding shares of common stock.On June 16,2015,Crossroads repurchased 20,000 shares of its own stock at $30 per share.On July 23,2015,Crossroads resold 10,000 shares at $28 per share.What net effect did the repurchase and the resell of common stock have on the accounting equation?

Accepted Answer

When Crossroads repurchased its own stock, it decreased its assets by $30 per share x 20,000 shares = $600,000. The stockholders’ equity decreased because the number of outstanding shares reduced by 20,000. Therefore, the resale of 10,000 shares at a lower price of $28 per share has decreased the value of the assets by an additional $280,000, while making no impact on stockholders' equity. Overall, the repurchase and resale of common stock have decreased both assets and stockholders' equity, thus resulting in a decrease in the accounting equation.

Question 7

Which of the following statements about treasury stock transactions is true?

Accepted Answer

The answer of Which of the following statements about treasury...

Question 8

Retained Earnings:

Accepted Answer

Retained earnings is a component of stockholders' equity that represents the accumulated net income of a company that has not been distributed as dividends. Retained earnings increase stockholders' equity and have a normal credit balance, not a debit balance. It is not necessarily equal to the balance in cash, and it does not decrease stockholders' equity.

Question 9

On November 6,Coleman Corp.reacquired 1,000 shares of its $2 par value common stock for $27 each.On November 20,Coleman Corp.reissued 400 shares for $30 each.Which of the following is correct regarding the effect of the journal entry for the reissued shares?

Accepted Answer

The reissued shares result in an increase in stockholders' equity as the company received $30 per share which is $3 more than the cost of reacquiring the shares at $27 per share. Therefore, the journal entry for the reissued shares will include a credit to Common Stock for $800 ($2 x 400) and a credit to Paid-in Capital in Excess of Par for $400 ($1 x 400). This will increase the Stockholders' Equity by $1,200.

Question 10

The balance of Retained Earning at the end of the year represents:

Accepted Answer

The answer of The balance of Retained Earning at the...

Question 11

On February 22,Brett Corporation reacquired 200 shares of its $5 par value common stock for $25 each.On March 15,the company reissued 70 shares for $30 each.What is true of the entry for reissuing their shares?

Accepted Answer

When reissuing treasury stock above its cost, the difference between the reissue price and the cost is credited to Additional Paid in Capital. Here, the difference is $5 per share for 70 shares, totaling $350.

Question 12

The ending Retained Earnings balance of Lambert Inc.increased by $1.5 million from the beginning of the year.The company's net income earned during the year is $3.5 million.What is the amount of dividends Lambert Inc.declared and paid?

Accepted Answer

The increase in Retained Earnings is equal to the Net Income minus the dividends paid out. Therefore, Retained Earnings increased by $1.5 million and Net Income was $3.5 million. Subtracting the two, we get $2 million for dividends declared and paid out. Therefore, the answer is C.

Question 13

The board of directors of Capstone Inc.declared a $0.60 per share cash dividend on its $1 par common stock.On the date of declaration,there were 50,000 shares authorized,20,000 shares issued,and 5,000 shares held as treasury stock.What is the entry when the dividends are declared?

Accepted Answer

The answer of The board of directors of Capstone Inc.declared...

Question 14

Both cash dividends and stock dividends:

Accepted Answer

Cash dividends and stock dividends both reduce retained earnings, which is a component of stockholders' equity. Therefore, total stockholders' equity is reduced. However, they do not affect total assets or liabilities directly.

Question 15

Which of the following is TRUE regarding the accounting for treasury stock?

Accepted Answer

The answer of Which of the following is TRUE regarding...

Question 16

Treasury Stock:

Accepted Answer

Treasury stock is when a company buys back its own shares of stock, which decreases the number of outstanding shares and therefore decreases stockholders' equity.

Question 17

The declaration and issuance of a stock dividend:

Accepted Answer

A stock dividend reallocates amounts within stockholders' equity, increasing common stock and decreasing retained earnings, but total stockholders' equity remains unchanged.

Question 18

On December 2,Coley Corp.reacquired 1,000 shares of its $2 par value common stock for $27 each.On December 20,Coley Corp.reissued 400 shares for $15 each.Which of the following is correct regarding the journal entry for the reissued shares?

Accepted Answer

The answer of On December 2,Coley Corp.reacquired 1,000 shares of...

Question 19

Over the first four years of the company's life,it earned the following net income (loss): $6,000;$3,000;$6,000,and ($2,000).If the company's ending retained earnings is $10,000 after year 4,what is the average amount of dividends paid per year?

Accepted Answer

We need to first calculate the total net income over the first four years:

$6,000 + $3,000 + $6,000 - $2,000 = $13,000

We then subtract this from the ending retained earnings:

$10,000 - $13,000 = ($3,000)

This represents the total dividends paid over the first four years. To find the average amount of dividends paid per year, we divide by the number of years:

($3,000) / 4 = ($750)

Therefore, the average amount of dividends paid per year is $750.

Question 20

Journal entries to record cash dividends are made on the:

Accepted Answer

Journal entries to record cash dividends are made on the declaration date and payment date. The declaration date is when the board of directors announces the dividend and sets a date of record, which is the date by which shareholders must have owned the stock to be eligible for the dividend. The payment date is when the dividend is actually paid out to shareholders. The record date is only used to determine which shareholders are eligible for the dividend and does not require a journal entry to be made.

Quiz 10: Stockholders Equity