ACC 109 Exam 2

Retained earnings that are restricted are unavailable for dividends.

True

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

1,500,000/500,000 3 3:1 stock split

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

2:1 stock split

When stock dividends are distributed,

Common Stock Dividends Distributable is decreased.

A corporation is not 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 distribution date.

D. a distribution date.

Regular dividends are declared out of A. Pd-in capital in excess of par B. treasury stcok C common stock D retained earnings

D. retained earnings

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

False

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 div

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

approval of stockholders

If a stockholder receives a dividend that reduces retained earnings by the fair value of the stock, the shareholder has received a

small stock dividend

a prior period adjustment for understatement of net income will

be credited to the RE account

Stock dividends and stock splits have the following

split: no change dividend: decrease

dividends are predominantly paid in

cash

of the various types of dividends, the two most common are

cash and small stock

common stock dividends distributable is classified as

stockholders' equity account

dividends payable is classified as

current liability

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

The effect of a stock dividend is to

decrease total assets and stockholders' equity.

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

false

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

false

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

false

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

false

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

false

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

false

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

false

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

false

Preferred dividends paid are added back to net income in calculating EPS for common shareolders

false

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

false

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

false

Retained earnings represents the amount of cash available for dividends.

false

Return on common stockholders' equity is computed by dividing net income by ending stockholders' equity

false

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

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

which of the following show the proper effect of a stock split and a stock dividend?

item: par value per share Stock split: decrease Stock dividend: no change

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

a stock split

may occur in the absence of retained earnings

Identify the effect the declaration and distribution of a stock dividend has on the par value per

no effect

on the dividend record date

no entry is required

prior period adjustments are reported

on the current year's retained earnings statement

If the board of directors authorizes a $1,000,000 restriction of retained earnings for a future....

reduce the amount of retained earnings available for dividend declarations.

A prior period adjustment that corrects income of a prior period requires that an entry be made to?

retained earnings

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

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

A 10% stock dividend will increase the number of shares outstanding but the par value will stay the same

true

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

true

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

true

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

true

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

true

A prior period adjustment is reported as an adjustment of the beginning balance of Retained earnings

true

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

true

EPS is reported for common stock

true

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

true

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

true

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

true

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

true

cash dividends are not a liability to the corporation until they are declared by the BOD

true

dividends may be declared and paid in cash or stock

true

corporation income tax expense is

usually accrued in the adjusting entry process