Strayer ACC/206 Accounting Principles II Week 6 Quiz

TRUE-FALSE STATEMENTS

1. Dividends may be declared and paid in cash or stock.

True

False

2. Cash dividends are not a liability of the corporation until they are declared by the board of directors.

True

False

3. The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

True

False

4. A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.

True

False

5. A 3 for 1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock.

True

False

6. Retained earnings represents the amount of cash available for dividends.

True

False

7. Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.

True

False

8. A debit balance in the Retained Earnings account is identified as a deficit.

True

False

9. A correction in income of a prior period involves either a debit or credit to the Retained Earnings account.

True

False

10. Prior period adjustments to income are reported in the current year's income statement.

True

False

11. Retained earnings that are restricted are unavailable for dividends.

True

False

12. Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.

True

False

13. A retained earnings statement shows the same information as a corporation income statement.

True

False

14. A detailed stockholders' equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record.

True

False

15. Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders' equity section of the balance sheet.

True

False

16. Return on common stockholders’ equity is computed by dividing net income by ending stockholders’ equity.

True

False

17. Many companies prepare a stockholders’ equity statement instead of presenting a detailed stockholders’ equity section in the balance sheet.

True

False

18. A major difference among corporations, proprietorships, and partnerships is that a corporation's income statement reports income tax expense.

True

False

19. A corporation incurs income tax expense only if it pays dividends to stockholders.

True

False

20. Income tax expense usually appears as a separate section on a corporation income statement.

True

False

21. Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding.

True

False

22. Preferred dividends paid are added back to net income in calculating earnings per share for common stockholders.

True

False

23. Earnings per share indicates the net income earned by each share of outstanding common stock.

True

False

24. Earnings per share is reported for both preferred and common stock.

True

False

25. Most companies are required to report earnings per share on the face of the income statement.

True

False

Additional True-False Questions

26. A dividend based on paid-in capital is termed a liquidating dividend.

True

False 

27. Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders' equity section.

True

False 

28. A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.

True

False 

29. Income tax expense and the related liability for income taxes payable are recorded when taxes are paid.

True

False 

30. Earnings per share is reported only for common stock.

True

False 

MULTIPLECHOICE QUESTIONS

31. Each of the following decreases retained earnings except a 

a. cash dividend.

b. liquidating dividend. 

c. stock dividend.

d. All of these decrease retained earnings.

32. Each of the following decreases total stockholders' equity except a 

a. cash dividend.

b. liquidating dividend.

c. stock dividend.

d. All of these decrease total stockholders' equity.

33. Which one of the following is not necessary in order for a corporation to pay a cash dividend?

a. Adequate cash

b. Approval of stockholders

c. Declaration of dividends by the board of directors 

d. Retained earnings

34. If a corporation declares a dividend based upon paid-in capital, it is known as a 

a. scrip dividend.

b. property dividend. c. paid dividend.

d. liquidating dividend.

35. The date on which a cash dividend becomes a binding legal obligation is on the 

a. declaration date.

b. date of record. 

c. payment date.

d. last day of the fiscal year-end.

36. The effect of the declaration of a cash dividend by the board of directors is to

Increase                            Decrease

a. Stockholders' equity                     Assets

b. Assets                             Liabilities 

c. Liabilities                        Stockholders' equity 

d. Liabilities                        Assets

37. The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

a. decrease total liabilities and stockholders' equity. 

b. increase total expenses and total liabilities.

c. increase total assets and stockholders' equity. 

d. decrease total assets and stockholders' equity.

38. Common Stock Dividends Distributable is classified as a(n) 

a. asset account.

b. stockholders' equity account. 

c. expense account.

d. liability account.

39. The effect of a stock dividend is to

a. decrease total assets and stockholders' equity. 

b. change the composition of stockholders' equity. 

c. decrease total assets and total liabilities.

d. increase the book value per share of common stock.

40. If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is

a. Common Stock Dividends Distributable. 

b. Common Stock.

c. Paid-in Capital in Excess of Par. 

d. Retained Earnings.

41. Which one of the following events would not require a formal journal entry on a corporation's books?

a. 2 for 1 stock split

b. 100% stock dividend

c. 2% stock dividend

d. $1 per share cash dividend

42. Stock dividends and stock splits have the following effects on retained earnings:

Stock Splits                         Stock Dividends

a. Increase                         No change

b. No change                         Decrease

c. Decrease                         Decrease 

d. No change                         No change

43. Dividends are predominantly paid in 

a. scrip.

b. property. 

c. cash.

d. stock.

44. If a stockholder receives a dividend consisting of a promissory note, the stockholder has received a

a. stock dividend. 

b. cash dividend.

c. contingent dividend. 

d. scrip dividend.

45. Of the four dividends types, the two most common types in practice are 

a. cash and scrip.

b. cash and property. 

c. cash and stock.

d. property and stock.

46. Regular dividends are declared out of

a. Paid-in Capital in Excess of Par Value. 

b. Treasury Stock.

c. Common Stock.

d. Retained Earnings.

47. A corporation is committed to a legal obligation when it declares 

a. a cash dividend.

b. either a cash dividend or a stock dividend. 

c. a stock dividend.

d. a stock split.

48. Which of the following is not a significant date with respect to dividends? 

a. The declaration date

b. The incorporation date 

c. The record date

d. The payment date

49. On the dividend record date

a. a dividend becomes a current obligation. 

b. no entry is required.

c. an entry may be required if it is a stock dividend. 

d. Dividends Payable is debited.

50. Which of the following statements regarding the date of a cash dividend declaration is not accurate?

a. The dividend can be rescinded once it has been declared. 

b. The corporation is committed to a legal, binding obligation.

c. The board of directors formally authorizes the cash dividend. 

d. A liability account must be increased.

51. Dividends Payable is classified as a 

a. long-term liability.

b. contra stockholders' equity account to Retained Earnings. 

c. current liability.

d. stockholders' equity account.

52. Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:

Total Assets         Total Liabilities            Total Stockholders' Equity

a. Increase         Decrease                No change

b. No change        Increase                Decrease

c. Decrease        Increase                Decrease

d. Decrease        No change                Increase 

53. Which of the following statements about dividends is not accurate? 

a. Many companies declare and pay cash quarterly dividends.

b. Low dividends may mean high stock returns.

c. The board of directors is obligated to declare dividends. 

d. A legal dividend may not be a feasible one.

54. The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to

a. decrease current liabilities and stockholders' equity. 

b. increase total assets and stockholders' equity.

c. increase current liabilities and stockholders' equity. 

d. decrease stockholders' equity and total assets.

55. The declaration and distribution of a stock dividend will 

a. increase total stockholders' equity.

b. increase total assets. 

c. decrease total assets.

d. have no effect on total assets.

56. ABC, Inc. has 1,000 shares of 4%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2008. What is the annual dividend on the preferred stock?

a. $40 per share 

b. $4,000 in total 

c. $400 in total 

d. $.40 per share

57. Agler, Inc. has 10,000 shares of 6%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2008. If the board of directors declares a $50,000 dividend, the

a. preferred shareholders will receive 1/10th of what the common shareholders will receive.

b. preferred shareholders will receive the entire $50,000.

c. $50,000 will be held as restricted retained earnings and paid out at some future date. 

d. preferred shareholders will receive $25,000 and the common shareholders will receive $25,000.

58. Manner, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2008. There were no dividends declared in 2007. The board of directors declares and pays a $55,000 dividend in 2008. What is the amount of dividends received by the common stockholders in 2008?

a. $0

b. $30,000 

c. $55,000 

d. $25,000

59. Lopez, Inc. has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2007, and December 31, 2008. The board of directors declared and paid a $4,000 dividend in 2007. In 2008, $20,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2008?

Preferred                     Common

a. $12,000                     $8,000

b. $10,000                     $10,000

c. $8,000                    $12,000

d. $6,000                    $14,000

60. Norton, Inc. has 10,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2008, and December 31, 2009. The board of directors declared and paid a $50,000 dividend in 2008. In 2009, $100,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2009?

Preferred                     Common

a. $0                        $100,000

b. $60,000                     $40,000

c. $50,000                     $50,000

d. $100,000                     $0

61. The board of directors must assign a per share value to a stock dividend declared that is 

a. greater than the par or stated value.

b. less than the par or stated value. 

c. equal to the par or stated value.

d. at least equal to the par or stated value.

62. Corporations generally issue stock dividends in order to 

a. increase the market price per share.

b. exceed stockholders' dividend expectations. 

c. increase the marketability of the stock.

d. decrease the amount of capital in the corporation.

63. A stockholder who receives a stock dividend would 

a. expect the market price per share to increase. 

b. own more shares of stock.

c. expect retained earnings to increase.

d. expect the par value of the stock to change.

64. When stock dividends are distributed

a. Common Stock Dividends Distributable is decreased. 

b. Retained Earnings is decreased.

c. Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend. 

d. no entry is necessary if it is a large stock dividend.

65. A small stock dividend is defined as

a. less than 30% but greater than 25% of the corporation's issued stock. 

b. between 50% and 100% of the corporation's issued stock.

c. more than 30% of the corporation's issued stock.

d. less than 20–25% of the corporation's issued stock.

66. The per share amount normally assigned by the board of directors to a large stock dividend is

a. the market value of the stock on the date of declaration.

b. the average price paid by stockholders on outstanding shares. 

c. the par or stated value of the stock.

d. zero.

67. The per share amount normally assigned by the board of directors to a small stock dividend is

a. the market value of the stock on the date of declaration.

b. the average price paid by stockholders on outstanding shares. 

c. the par or stated value of the stock.

d. zero.

68. Identify the effect the declaration of a stock dividend has on the par value per share and book value per share.

Par Value per Share a. Increase

b. No effect 

c. Decrease 

d. No effect

69. The declaration of a stock dividend will 

a. increase paid-in capital.

b. change the total of stockholders' equity. 

c. increase total liabilities.

d. increase total assets.

70. Which of the following show the proper effect of a stock split and a stock dividend?

        Item            Stock Split                 Stock Dividend

a. Total paid-in capital         Increase                Increase

b. Par value per share            Decrease                No change

c. Total retained earnings        Decrease                Decrease

d. Total par value (common)         Decrease                Increase

71. A stock split

a. may occur in the absence of retained earnings. 

b. will increase total paid-in capital.

c. will increase the total par value of the stock.

d. will have no effect on the par value per share of stock.