Intro to Corporate Exam 2 MC/TF
Which of the following events would not require a formal journal entry on a corporation's books?
2 for 1 stock split
A corporation is not committed to a legal obligation when it declares
A distribution date
Which one of the following is not necessary in order for a corporation to pay a cash dividend?
Approval of stockholders
Of the various dividends types, the two most common types in practice are
Cash and small stock
When stock dividends are distributed,
Common stock dividends distributable is decreased.
T/F: earnings per share is reported for both preferred and common stock
False
The effect of the declaration of a cash dividend by the board of directors is to
Increase liabilities and decrease stockholders' equity
The effect of the declaration of a cash dividend by the board of directors is to increase?
Liabilities
A stock split
May occur in the absence of retained earnings
Which of the following show the proper effect of a stock split and a stock dividend?
Par value per share decreases during stock split and no change during stock dividend.
If the board of directors authorizes a $1,000,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
Reduce the amount of retained earnings available for dividend declarations
T/F: Dividends may be declared and paid in cash or stock
True
T/F: Earnings per share indicates the net income earned by each share of outstanding common stock.
True
T/F: Earnings per share is reported only for common stock.
True
A prior period adjustment for understatement of net income will
be credited to the retained earnings account
Dividends are predominately paid in
cash
The effect of a stock dividend is to
change the composition of stockholders' equity
Regular dividends are declared out of
Retained earnings
If a stockholder receives a dividend that reduces retained earnings by the fair value of the stock, the stockholder has received a
small stock dividend
Each of the following decreases total stockholders' equity except a
stock dividend
Common stock dividends distributable is classified as a(n)
stockholders' equity account
The per share amount normally assigned by the board of directors to a large stock dividend is
the par or stated value of the stock
Corporation income tax expense is
usually accrued in the adjusting entry process.
Bento, Inc. had 500,000 shares of common stock outstanding before a stock split occurred, and 1,500,000 shares outstanding after the stock split. The stock split was
3-for-1
T/F: Earnings per share is calculated by dividing net income by the weighted-average number of shares of preferred stock and common stock outstanding.
False
T/F: Income tax expense and the related liability for income taxes payable are recorded when taxes are paid.
False
T/F: Retained earnings represents the amount of cash available for dividends
False
T/F: 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.
False
T/F: Common stock dividends distributable is shown within the Paid-in Capital subdivision of the stockholders' equity section of the balance sheet.
True
T/F: Income tax expense usually appears as a separate section on a corporation income statement.
True
T/F: Many companies prepare a stockholders' equity statement instead of presenting a detailed stockholders' equity section in the balance sheet.
True
T/F: Most companies are required to report earnings per share on the face of the income statement
True
T/F: Retained earnings that are restricted are unavailable for dividends
True
Prior period adjustments are reported
on the current year's retained earnings statement
T/F: Common stock dividends distributable is reported as additional paid-in capital in the stockholders' equity section.
False
On the dividend record date
no entry is required
Dividends payable is classified as a
Current Liability
T/F A corporation incurs income tax expense only if it pays dividends to stockholders
False
T/F: A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of the common stock
False
Which of the following statements about dividends is not accurate?
The board of directors is obligated to declare dividends.
Which of the following statements regarding the date of a cash dividend declaration is not accurate?
The dividend can be rescinded once it has been declared
Which of the following is not a significant date with respect to dividends?
The incorporation date
The per share amount normally assigned by the board of directors to a small stock dividend is
The market value of the stock on the date of declaration
The date a cash dividend becomes a binding legal obligation to a corporation is the
declaration date
The date on which a cash dividend becomes a binding legal obligation is on the
declaration date
The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to
decrease stockholders' equity and total assets
The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to
decrease total assets and stockholders' equity
Each of the following statements is correct except that earnings per share is reported
for both common and preferred stock
The declaration and distribution of a stock dividend will
have no effect on total assets
The declaration of a stock dividend will
increase paid-in capital
The formula for computing earnings per share is net income
less preferred dividends divided by the weighted-average number of common shares outstanding
A small stock dividend is defined as
less than 20-25% of the corporation's issued stock
If a corporation declares a dividend based upon paid-in capital, it is known as a
liquidating dividend
Prior period adjustments
may either increase or decrease retained earnings
T/F: A detailed stockholders' equity section in the balance sheet will list the name of individuals who are eligible to receive dividends on the date of record.
False
T/F: A retained earnings statement shows the same information as a corporation income statement.
False
Stock dividends and stock splits have the following effects on retained earnings:
No change to stock splits and decrease stock dividends
Identify the effect the declaration and distribution of a stock dividend has on the par value per share
No effect
Which of the following statements about a cash dividend is incorrect?
Shareholders usually vote to determine the amount of income to be distributed in the form of a dividend
A prior period adjustment that corrects income of a prior period requires that an entry be made to?
The retained earnings account
T/F: A 10% stock dividend will increase the number of shares outstanding but the par value per share will stay the same.
True
T/F: A correction in income of a prior period involves either a debit or credit to the retained earnings account
True
T/F: Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts
False
T/F: Preferred dividends paid are added back to net income in calculating earnings per share for common stockholders
False
T/F: Prior period adjustments to income are reported in the current year's income statement.
False
T/F: Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends
False
T/F: Return on common stockholders' equity is computed by dividing net income by ending stockholders' equity.
False
T/F: A debit balance in the retained earnings account is identified as a deficit
True
T/F: A dividend based on paid-in capital is termed a liquidating dividend
True
T/F: A major difference among corporations, proprietorships, and partnerships is that a corporation's income statement reports income tax expense.
True
T/F: A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.
True
T/F: Cash dividends are not a liability of the corporation until they are declared by the board of directors.
True
