ACC 206 Week 11 Final Exam – Strayer

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Chapter14 Through 19

CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

CHAPTERSTUDYOBJECTIVES

1.Preparetheentriesforcashdividendsandstockdividends.

2.Identifytheitemsreportedinaretainedearningsstatement.

3.Prepareandanalyzeacomprehensivestockholders'equitysection.

4.Describetheformandcontentofcorporationincomestatements.

5.Computeearningspershare.

TRUE-FALSESTATEMENTS

1.         Dividendsmaybedeclaredandpaidincashor stock.

2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

11.     Retainedearningsthat are restrictedareunavailablefordividends.

12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

24.     Earningsper shareis reportedfor both preferredandcommonstock.

25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

Additional True-FalseQuestions

26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

30.     Earningsper shareis reportedonlyforcommonstock.

MULTIPLECHOICEQUESTIONS

31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

         Increase         

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

         Decrease         

Assets Liabilities

Stockholders'equity Assets

37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8       

46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

54.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's balance sheet isto

a.decreasecurrent liabilitiesand stockholders'equity. b.increasetotalassetsandstockholders'equity.

c.increasecurrentliabilitiesandstockholders'equity. d.decreasestockholders' equityandtotalassets.

55.     Thedeclarationanddistributionof a stockdividendwill a.increasetotalstockholders'equity.

b.increasetotalassets. c.decreasetotal assets.

d.havenoeffectontotalassets.

56.     ABC,Inc.has1,000sharesof4%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$40pershare b.$4,000intotal c.$400intotald.$.40pershare

57.     Agler,Inc.has10,000sharesof6%,$100parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Ifthe board ofdirectors declaresa$50,000dividend,the

a.preferredshareholderswillreceive1/10thofwhatthecommonshareholderswill receive.

b.preferredshareholders willreceivetheentire$50,000.

c.$50,000willbeheldasrestrictedretainedearningsandpaidoutatsomefuturedate.d.preferredshareholderswill receive$25,000and the commonshareholders will receive

$25,000.

58.     Manner,Inc.has5,000sharesof6%,$100parvalue,noncumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$55,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$30,000 c.$55,000 d.$25,000

59.     Lopez,Inc.has2,000sharesof6%,$50parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2007,andDecember 31,2008.Theboardofdirectorsdeclaredandpaida$4,000dividendin2007.In2008, $20,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedbythe preferredandcommonshareholdersin2008?

Preferred a. $12,000 b.       $10,000 c.       $8,000d.          $6,000

Common $8,000 $10,000 $12,000 $14,000

14-10

60.     Norton, Inc.has10,000sharesof6%,$100 par value,noncumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2009. Theboard ofdirectors declared andpaida$50,000dividend in2008. In2009,$100,000ofdividendsaredeclaredandpaid.What arethedividendsreceivedby thepreferredandcommonshareholdersin 2009?

Preferred a.$0

b.$60,000 c.$50,000 d.$100,000

Common $100,000 $40,000 $50,000 $0

61.     Theboardof directorsmustassignapersharevalueto a stockdividenddeclaredthat is a.greaterthantheparor statedvalue.

b.lessthanthe parorstated value. c.equaltotheparor statedvalue.

d.atleastequaltothe parorstatedvalue.

62.     Corporationsgenerallyissuestock dividendsinorderto a.increasethemarketpricepershare.

b.exceedstockholders'dividendexpectations. c.increasethemarketabilityof thestock.

d.decreasetheamountofcapitalinthe corporation.

63.     A stockholderwhoreceivesastockdividendwould a.expectthemarketpricepershareto increase. b.own moreshares ofstock.

c.expectretainedearningstoincrease.

d.expecttheparvalueof the stocktochange.

64.     Whenstockdividendsaredistributed,

a.CommonStock DividendsDistributableisdecreased. b.RetainedEarningsisdecreased.

c.Paid-inCapitalin ExcessofPar Valueisdebitedifitis a smallstockdividend. d.noentryis necessaryifit isalargestock dividend.

65.     A smallstockdividendisdefinedas

a.lessthan30%butgreaterthan25%of thecorporation's issuedstock. b.between50%and100%ofthecorporation's issuedstock.

c.morethan30%ofthecorporation's issuedstock.

d.lessthan20–25% of thecorporation'sissuedstock.

66.     Thepershareamountnormallyassignedbytheboardofdirectorstoalargestock dividend is

a.themarketvalueof thestock onthedate of declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-11

67.     Thepershareamountnormallyassignedbytheboardofdirectorstoasmallstock dividend is

a.themarketvalue of thestock onthedateof declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

68.     Identifytheeffectthedeclarationofastockdividendhasontheparvaluepershareand book valuepershare.

Par Valueper Share a.          Increase

b.         Noeffect c.        Decrease d.     Noeffect

Book ValueperShareDecrease Increase Decrease Decrease

69.     Thedeclarationof astockdividendwill a.increasepaid-incapital.

b.changethetotal of stockholders'equity. c.increasetotal liabilities.

d.increasetotalassets.

70.     Whichofthefollowingshowthepropereffectofastocksplitandastockdividend?

               Item                   

a.         Totalpaid-incapitalb.     Totalretainedearnings

c.Totalpar value(common) d.    Parvaluepershare

StockSplit Increase

Decrease Decrease Decrease

StockDividend Increase Decrease IncreaseNochange

71.     A stocksplit

a.mayoccurinthe absenceof retainedearnings. b.willincreasetotalpaid-incapital.

c.will increasethetotalparvalueof thestock.

d.willhavenoeffectontheparvaluepershareof stock.

72.     OutstandingstockoftheApexCorporationincluded20,000sharesof$5parcommon stockand5,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Apex declaredandpaiddividendsof$2,000.In2008,Apexdeclaredandpaiddividendsof $6,000.Howmuchof the 2008dividendwasdistributedtopreferredshareholders?

a.$4,000 b.$7,000 c.$3,000

d.Noneof theabove

73.     OutstandingstockoftheBellCorporationincluded20,000sharesof$5parcommonstock and10,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Belldeclared andpaiddividendsof$4,000.In2008,Belldeclaredandpaiddividendsof$12,000.How muchofthe2008 dividendwasdistributedtopreferredshareholders?

a.$8,000b.$14,000 c.$6,000

d.Noneof theabove

14-12

74.     OnJanuary1,BluefieldCorporationhad800,000sharesof$10parvaluecommonstock outstanding.OnMarch31,thecompanydeclareda10%stockdividend.Marketvalueof thestockwas$15/share.Asaresultof thisevent,

a.Bluefield’sPaid-in Capitalin ExcessofParValueaccountincreased $400,000. b.Bluefield’stotalstockholders’equitywasunaffected.

c.Bluefield’sRetained Earningsaccountdecreased$1,200,000. d.All of the above.

75.     OnJanuary1,GarrisonCorporationhad1,000,000sharesof$10parvaluecommon stockoutstanding.OnMarch31,thecompanydeclareda10%stockdividend.Market value of thestockwas $15/share.Asaresultofthisevent,

a.Garrison’sPaid-inCapitalinExcessofParValueaccountincreased $500,000. b.Garrison’stotal stockholders’equitywasunaffected.

c.Garrison’sRetainedEarningsaccountdecreased$1,500,000. dAllof theabove.

76.     SunInc.has5,000sharesof6%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$60pershareb.$30,000intotal c.$3,000intotald.$0.60pershare

77.     Allstate,Inc.,has20,000sharesof6%,$100parvalue,noncumulativepreferredstock and100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.If the boardofdirectorsdeclaresa$200,000dividend,the

a.preferredstockholderswillreceive2/10th    ofwhatthecommonstockholderswill receive.

b.preferredstockholders willreceivetheentire$200,000.

c.$120,000willbeheldasrestrictedretainedearningsandpaidoutat somefuturedate. d.preferredstockholderswillreceive$120,000andthecommonstockholderswill

receive$80,000.

78.     Archer,Inc., has 10,000sharesof8%,$100par value, noncumulativepreferredstock and 40,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectors declaresandpaysa$120,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$80,000c.$120,000 d.$40,000

79.     LutherInc.,has2,000sharesof8%,$50parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2007.Theboardofdirectorsdeclaredandpaida$6,000dividendin2007. In2008,$24,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thepreferredstockholdersin2008?

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-13

a.$14,000 b.$12,000 c.$10,000 d.$8,000

`80.     Anders,Inc.,has5,000sharesof6%,$100parvalue,cumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2009.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$50,000 dividendin2008andin2009.Whatistheamountofdividendsreceivedbythecommon stockholdersin2009?

a.$10,000 b.$30,000 c.$50,000 d.$0

81.    CutherInc.,has1,000sharesof8%,$50parvalue,cumulativepreferredstockand 50,000sharesof$1parvaluecommonstockoutstandingatDecember31,2007,and December31,2008.Theboardofdirectorsdeclaredandpaida$3,000dividendin2007. In2008,$12,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thecommonstockholdersin 2008?

a.$7,000 b.$6,000 c.$5,000 d.$4,000

82.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Theentryto recordthetransactionofMarch17wouldincludea

a.creditto Retained Earningsfor$18,000. b.creditto Cashfor$78,000.

c.credittoCommonStockDividendsDistributablefor$60,000. d.debitto CommonStockDividendsDistributablefor $60,000.

83.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Thestockwas distributedonMarch30.TheentrytorecordthetransactionofMarch30wouldincludea

a.creditto Cashfor$60,000.

b.debittoCommonStockDividendsDistributablefor$60,000. c.credittoPaid-inCapitalinExcessofParValuefor$18,000. d.debittoRetainedEarningsfor $18,000.

84.     OnJanuary1,SandfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Theentrytorecordthe transactionofJune17wouldincludea

a.debitto RetainedEarningsfor $120,000. b.creditto Cashfor$120,000.

c.credittoCommonStockDividendsDistributablefor$120,000. d.creditto CommonStockDividendsDistributablefor$40,000.

14-14

85.     OnJanuary1,SanfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Thestockwas distributedonJune30.The entrytorecordthetransactionof June30wouldincludea

a.creditto Common Stockfor $80,000.

b.debitto CommonStockDividendsDistributablefor $120,000. c.creditto Paid-inCapitalin ExcessofParValuefor $40,000.d.debitto RetainedEarningsfor $40,000.

86.     Thefollowingselectedamounts areavailablefor SandersCompany.

Retainedearnings(beginning)              $1,000 Netloss                                                   100 Cashdividendsdeclared                         100 Stockdividendsdeclared                          50

Whatis its ending retainedearningsbalance? a.$850

b.$900 c.$750 d.$800

87.     TurquoiseandTopazSistershadretainedearningsof$10,000onthebalancesheetbut disclosedinthefootnotesthat$2,000ofretainedearningswasrestrictedforplant expansionand$1,000wasrestricted forbondrepayments.Cashof$2,000hadbeenset asidefortheplantexpansion.Howmuchofretainedearningsisavailablefor dividends?

a.$7,000b.$8,000c.$10,000 d.$5,000

88.     Irwin,Inc.had300,000sharesofcommonstockoutstandingbeforeastocksplitoccurred, and 600,000sharesoutstandingafterthestocksplit.Thestocksplitwas

a.3for6. b.6for1. c.1 for6. d.2for1.

89.     Restrictingretainedearningsforthecostoftreasurystockpurchasedisa a.contractualrestriction.

b.legalrestriction. c.stockrestriction.

d.voluntaryrestriction.

90.     Apriorperiodadjustmentthatcorrectsincomeofapriorperiodrequiresthatanentrybe madeto

a.an incomestatementaccount.

b.a currentyearrevenueor expenseaccount. c.theretainedearningsaccount.

d.an assetaccount.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-15

91.     Iftheboardofdirectors authorizes a$100,000 restrictionofretainedearnings forafuture plantexpansion,the effect of thisaction isto

a.decreasetotalassetsandtotal stockholders'equity.

b.increasestockholders' equity anddecreasetotalliabilities.

c.decreasetotalretainedearningsandincreasetotalliabilities.

d.reducetheamount of retainedearningsavailablefor dividenddeclarations.

92.     Acreditbalanceinretainedearnings represents a.theamount ofcashretained inthebusiness. b.aclaimonspecificassets of thecorporation.

c.a claimonthe aggregateassetsofthecorporation.

d.theamountofstockholders'equityexemptedfromthestockholders'claimontotal assets.

93.     A netloss

a.occursifoperatingexpensesexceedcostofgoodssold.

b.isnotclosedto RetainedEarningsifitwouldresult ina debitbalance.c.isclosedto RetainedEarningseven ifit wouldresult inadebitbalance.

d.isclosedtothepaid-incapitalaccountofthestockholders'equitysectionofthe balance sheet.

94.     Priorperiodadjustmentsarereported

a.inthefootnotesofthecurrent year'sfinancialstatements. b.on thecurrent year'sbalancesheet.

c.onthecurrentyear's incomestatement.

d.onthecurrent year'sretainedearnings statement.

95.     Retainedearningsareoccasionallyrestricted a.tosetasidecashfordividends.

b.tokeepthelegalcapitalassociatedwithpaid-incapitalintact. c.duetocontractualloanrestrictions.

d.ifpreferreddividendsare inarrears.

96.     Retainedearningsis increasedbyeachof thefollowingexcept a.netincome.

b.priorperiodadjustments.

c.somedisposals of treasury stock.

d.Allof theseincreaseretainedearnings.

97.     A priorperiodadjustmentfor understatementofnet incomewill a.becreditedto theRetainedEarningsaccount.

b.be debitedto theRetainedEarningsaccount.

c.showasagain onthecurrentyear'sIncomeStatement. d.showasanassetonthecurrentyear'sBalanceSheet.

98.     Theretainedearningsstatement

a.istheowners'equitystatementfor acorporation.

b.willshowanadditiontothebeginningretainedearningsbalanceforanunderstate-ment ofnet incomeinaprioryear.

c.willnotreflect netlosses.

d.will,insomecases,failtoreconcilethebeginningandendingretainedearnings balances.

14-16

99.     Inthe stockholders'equitysectionof thebalancesheet,

a.CommonStockDividendsDistributablewillbeclassifiedaspartofadditionalpaid-in capital.

b.CommonStockDividendsDistributablewillappearinitsownsubsectionofthestock-holders'equity.

c.AdditionalPaid-inCapitalappearsunder thesubsection Paid-inCapital. d.Dividendsinarrearswillappearasarestrictionof RetainedEarnings.

100.     Thereturnoncommonstockholders'equityiscomputedbydividingnetincomeavailable tocommonstockholdersby

a.endingtotalstockholders'equity.

b.endingcommonstockholders'equity. c.averagetotalstockholders'equity.

d.averagecommonstockholders'equity.

101.     Thereturnoncommonstockholders’equityis computedbydividing a.netincomebyendingcommonstockholders’equity.

b.netincomebyaveragecommonstockholders’equity.

c.net incomeless preferreddividendsbyendingcommonstockholders’equity.d. netincomelesspreferreddividendsbyaveragecommonstockholders’equity.

Usethefollowing informationforquestions102–103.

CarterCorporationhadnetincomeof$250,000andpaiddividendsof$50,000tocommon stockholdersand$20,000topreferredstockholdersin2008.CarterCorporation’scommon stockholders’equityatthebeginningandendof2008was$870,000and$1,130,000, respectively.Thereare100,000weighted-averagesharesofcommonstockoutstanding.

102.     CarterCorporation’sreturn oncommonstockholders’equitywas a.25%.

b.23%. c.20%. d.18%.

103.     CarterCorporation’searnings persharefor 2008was a.$2.50.

b.$2.30. c.$2.00. d.$1.80.

Usethefollowing informationforquestions104–105.

ThefollowinginformationpertainstoGreenwichCompany.Assumethatallbalancesheet amounts representaveragebalancefigures.

Stockholders’equity—common Totalstockholders’ equitySales

Netincome

Numberof sharesofcommonstock Commonstockdividends Preferredstockdividends

$150,000 200,000 100,000 25,000 10,000 10,000 4,000

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-17

104.     Whatisthereturnoncommon stockholders’equityratioforGreenwich? a.16.7%

b.14.0% c.12.7% d.10.5%

105.     WhatistheearningspershareforGreenwich? a.$2.50

b.$2.10 c.$1.50 d.$1.10

106.     A corporationdiffersfrom aproprietorshipandapartnershipinthat

a.assetsandliabilitiesarepresenteddifferentlyonthebalancesheet.

b.a corporationisconsideredaseparatelegalentityfortaxationpurposes. c.thecostprincipleonlyapplies to proprietorshipsandpartnerships.

dthe ownersof thecorporationdonothavea claimonthe netassetsofthebusiness.

107.     Incomestatementsforcorporationsarethesameasthestatementsforproprietorships exceptforthereportingof

a.grossprofit.

b.incomefromoperations. c.incometaxexpense.

d.otherrevenuesandgains.

108.     Incomestatementsforcorporationsarethesameastheincomestatementsfor proprietorships exceptfor thereportingof

a.costof goodssold. b.incometaxes.

c.grossprofit.

d.otherrevenuesandotherexpenses.

109.     Corporationincometaxexpenseis

a.usuallyaccrued intheadjustingentryprocess.

b.notusuallyaccruedbecause itisnotknownwhattheexactliabilitywillbeuntilthetax return isfiled.

c.notreportedinaseparatesectionof acorporateincomestatement. d.reportedsimilarlyforcorporations andpartnerships.

110.     Whencomputingearningspershare,

a.anadjustmentrelatedtopreferredstockdividendsismadeinthenumeratorand denominator of theearningspershareformula.

b.anadjustmentforthepreferreddividendsismadeinthedenominatoroftheearnings pershare formula.

c.thedividendsforcumulativepreferredstockaredeductedfromnetincomeonlyifthe preferreddividendshavebeendeclared.

d.thedividends forcumulativepreferredstockaredeductedfromnetincomewhetheror notpreferreddividendshavebeendeclared.

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111.     Eachof thefollowingstatementsiscorrectexceptthatearningspershareisreported a.belownet income.

b.for bothcommonandpreferredstock. c.onthefaceof theincomestatement.

d.basedontheweighted-averagenumberof commonsharesoutstanding.

112.     West,Inc.hasanetincomeof$400,000for2008,andthereare200,000weighted-averagesharesofcommonstockoutstanding.Dividendsdeclaredandpaidduringthe yearamountedto$80,000onthepreferredstockand$120,000onthecommonstock. Theearningspersharefor 2008is

a.$2.00. b.$.60.c.$1.60. d.$1.00.

113.     Theformulafor computingearningspershareis net income a.dividedbytheendingcommonsharesoutstanding.

b.dividedbytheweighted-averagenumberof commonsharesoutstanding.

c.lesspreferreddividendsdividedbytheendingcommonsharesoutstanding.

d.lesspreferreddividendsdividedbytheweighted-averagenumberofcommonshares outstanding.

Additional MultipleChoiceQuestions

114.     Whichofthefollowingstatements aboutacashdividend is incorrect? a.The legalityofacashdividenddependsonstatecorporationlaws.

b.The legalityofa dividenddoesnotindicate a company's abilityto payadividend. c.Dividendsare nota liabilityuntildeclared.

d.Shareholdersusuallyvotetodeterminetheamountofincometobedistributedinthe formof adividend.

115.     Thedateacashdividendbecomesa bindinglegalobligationto acorporationisthe a.declarationdate.

b.earningsdate. c.paymentdate. d.recorddate.

116.     AbbottCorporationsplitsitscommonstock4for1,whenthemarketvalueis$40per share.Priortothesplit,Abbotthad50,000sharesof$10parvaluecommonstockissued and outstanding.Afterthesplit,theparvalueof thestock

a.remainsthesame.

b.isreducedto $2pershare.

c.isreducedto $2.50 pershare. d.isreducedto $10pershare.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-19

117.     Whichofthefollowingstatements aboutretainedearningsrestrictionsisincorrect?

a.Manystatesrequireacorporationtorestrictretainedearningsforthecostoftreasury stockpurchased.

b.Long-termdebtcontractsmayimposea restrictionon retainedearningsasacondition for the loan.

c.Theboardofdirectorsofacorporationmayvoluntarilycreateretainedearnings restrictionsfor specificpurposes.

d.Retainedearningsrestrictionsaregenerallydisclosedthroughajournalentryonthe booksofacompany.

118.     Priorperiodadjustments

a.mayonlyincreaseretainedearnings. b.mayonlydecreaseretainedearnings.

c.mayeitherincreaseor decreaseretainedearnings. d.donotaffectretainedearnings.

119.     JenniferCompanyreportsthefollowing amountsfor2008:

Netincome Averagestockholders'equity Preferreddividends

Parvaluepreferredstock

$125,000 500,000 35,000 100,000

The2008rate ofreturnoncommonstockholders'equityis a.18.0%.

b.22.5%. c.25.0%. d.31.3%.

120.     Thereturnoncommonstockholders'equityis computed bydividing a.netincomebyendingcommonstockholders'equity.

b.netincomebyaveragecommonstockholders'equity.

c.net incomeminus preferreddividendsbyendingcommonstockholders'equity.d. netincomeminuspreferreddividendsbyaveragecommonstockholders'equity.

121.    MilnerCorporationhad200,000sharesofcommonstockoutstandingduringtheyear. Milnerdeclaredandpaidcashdividendsof$200,000onthecommonstockand$160,000 onthepreferredstock.Netincomefortheyearwas$880,000.WhatisMilner’searnings pershare?

a.$2.60 b.$3.40 c.$3.60 d.$4.40

122.     Whenacorporationhasbothpreferredandcommonstockoutstanding,earningsper share iscomputed bydividingnetincome

a.byendingcommonsharesoutstanding.

b.byweightedaveragecommonsharesoutstanding.

c.lesspreferreddividendsbyendingcommonsharesoutstanding.

d.lesspreferreddividendsbytheweightedaverageofcommonsharesoutstanding.

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123.    Indeterminingearningspershare,dividendsforthecurrentyearonnoncumulative preferredstock shouldbe

a.disregarded.

b.addedbacktonetincomewhetherdeclaredornot. c.deductedfromnetincomeonlyifdeclared.

d.deductedfromnetincomewhetherdeclaredornot.