Chapter 14 Corporations Dividends, Retained Earnings, AND Income Reporting Summary OF Questions BY Study Objectives AND Bloom S Taxonomy PDF

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Dividends and corporation accounting test bank questions...

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CHAPTER 14 CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item

SO

BT

Item

SO

BT

Item

SO

BT

Item

SO

BT

Item

SO

BT

4 4 5 5 5 5

K K K K K K

25. 26. sg 27. sg 28. sg 29. sg 30.

5 1 1 2 4 5

K K K K C K

2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 5 3 5 4

K K C C C K K C K C C K K K AP AP AP AP C

107. 108. 109. 110. 111. 112. 113. sg 114. st 115. sg 116. sg 117. st 118. sg 119. st 120. sg 121. st 122. sg 123.

4 4 4 5 5 5 5 1 1 1 2 2 3 3 5 5 5

C C K K K AP K C K K C K AP K AP K K

130. 131.

2 3

AP AP

132.

4

AP

145. 146. 147. 148.

3 3 3 4

AP AP AP AP

149. 150. 151.

5 5 5

AP AP AP

True-False Statements 1. 2. 3. 4. 5. 6.

1 1 1 1 1 2

K K K C C K

7. 8. 9. 10. 11. 12.

2 2 2 2 2 2

K K K K K K

13. 14. 15. 16. 17. 18.

2 3 3 3 3 4

C K K K K C

19. 20. 21. 22. 23. 24.

sg

Multiple Choice Questions 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

K K K K K C C K C C C C K K K K K K K

50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

C K C C C C AP AP AP AP AP K K C C K K K C

69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2

124. 125.

1 1

AP AP

126. 127.

1 1

AP AP

128. 129.

C C AP AP AP C C AP AP AP AP AP AP AP AP AP AP AP AP

88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106.

Brief Exercises 1 2

C K

Exercises 133. 134. 135. 136. sg st

1 1 1 1

AP AP AP AP

137. 138. 139. 140.

1 1–3 1 1,3

AP C AP AP

141. 142. 143. 144.

1 2 2 2

AP AN AP AP

This question also appears in the Study Guide. This question also appears in a self-test at the student companion website.

14 - 2

Test Bank for Accounting Principles, Eighth Edition

Completion Statements 152. 153.

1 1

K K

154. 155.

1 2

K K

156. 157.

2 3

K K

158. 159.

3 4

K K

160. 161.

5 5

K K

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item 1. 2. 3. 4. 5. 26. 27. 31. 32. 33. 34. 35.

Type TF TF TF TF TF TF TF MC MC MC MC MC

Item 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

Type

Item

MC MC MC MC MC MC MC MC MC MC MC MC

Type

Item

Type

48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59.

Study Objective 1 MC 60. MC 72. MC 61. MC 73. MC 62. MC 74. MC 63. MC 75. MC 64. MC 76. MC 65. MC 77. MC 66. MC 78. MC 67. MC 79. MC 68. MC 80. MC 69. MC 81. MC 70. MC 82. MC 71. MC 83.

MC MC MC MC MC MC MC MC MC MC MC MC

84. 85. 114. 115. 116. 124. 125. 126. 127. 128. 133. 134.

MC MC MC MC MC BE BE BE BE BE Ex Ex

135. 136. 137. 138. 139. 140. 141. 152. 153. 154.

Ex Ex Ex Ex Ex Ex Ex C C C

Study Objective 2 MC 92. MC 97. MC 93. MC 98. MC 94. MC 117. MC 95. MC 118. MC 96. MC 129.

MC MC MC MC BE

130. 138. 142. 143. 144.

BE Ex Ex Ex Ex

155. 156.

C C

Ex Ex Ex

146. 147. 157.

Ex Ex C

158.

C

BE Ex

159.

C

MC MC MC

149. 150. 151.

Ex Ex Ex

160. 161.

C C

6. 7. 8. 9. 10.

TF TF TF TF TF

11. 12. 13. 28. 86.

TF TF TF TF MC

87. 88. 89. 90. 91.

14. 15. 16.

TF TF TF

17. 99. 100.

TF MC MC

101. 102. 104.

18. 19.

TF TF

20. 29.

TF TF

106. 107.

21. 22. 23.

TF TF TF

24. 25. 30.

TF TF TF

103. 105. 110.

Note: TF = True-False MC = Multiple Choice

Type

Item

Type

Item

Study Objective 3 MC 119. MC 138. MC 120. MC 140. MC 131. BE 145. Study Objective 4 MC 108. MC 132. MC 109. MC 148. Study Objective 5 MC 111. MC 121. MC 112. MC 122. MC 113. MC 123. BE = Brief Exercise Ex = Exercise

C =

Item

Type

Completion

The chapter also contains one set of ten Matching questions and five Short-Answer Essay questions.

Corporations: Dividends, Retained Earnings, and Income Reporting

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CHAPTER STUDY OBJECTIVES 1.

Prepare the entries for cash dividends and stock dividends. Companies make entries for both cash and stock dividends at the declaration date and at the payment date. At the declaration date the entries are: cash dividend—debit Retained Earnings, and credit Dividends Payable; small stock dividend—debit Retained Earnings, credit Paid-in Capital in Excess of Par (or Stated) Value, and credit Common Stock Dividends Distributable. At the payment date, the entries for cash and stock dividends are: cash dividend—debit Dividends Payable and credit Cash; small stock dividend—debit Common Stock Dividends Distributable and credit Common Stock.

2.

Identify the items reported in a retained earnings statement. Companies report each of the individual debits and credits to retained earnings in the retained earnings statement. Additions consist of net income and prior period adjustments to correct understatements of prior years' net income. Deductions consist of net loss, adjustments to correct overstatements of prior years' net income, cash and stock dividends, and some disposals of treasury stock.

3.

Prepare and analyze a comprehensive stockholders' equity section. A comprehensive stockholders' equity section includes all stockholders' equity accounts. It consists of two sections: paid-in capital and retained earnings. It should also include notes to the financial statements that explain any restrictions on retained earnings and any dividends in arrears. One measure of profitability is the return on common stockholders’ equity. It is calculated by dividing net income minus preferred stock dividends by average common stockholders’ equity.

4.

Describe the form and content of corporation income statements. The form and content of corporation income statements are similar to the statements of proprietorships and partnerships with one exception: Corporations must report income taxes or income tax expense in a separate section before net income in the income statement.

5.

Compute earnings per share. Companies compute earnings per share by dividing net income by the weighted-average number of common shares outstanding during the period. When preferred stock dividends exist, they must be deducted from net income in order to calculate EPS.

14 - 4

Test Bank for Accounting Principles, Eighth Edition

TRUE-FALSE STATEMENTS 1.

Dividends may be declared and paid in cash or stock.

2.

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

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.

4.

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

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.

6.

Retained earnings represents the amount of cash available for dividends.

7.

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

8.

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

9.

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

10.

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

11.

Retained earnings that are restricted are unavailable for dividends.

12.

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

13.

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

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.

15.

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

16.

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

17.

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

18.

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

19.

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

Corporations: Dividends, Retained Earnings, and Income Reporting

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20.

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

21.

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

22.

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

23.

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

24.

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

25.

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

Additional True-False Questions 26.

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

27.

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

28.

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

29.

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

30.

Earnings per share is reported only for common stock.

Answers to True-False Statements Item

1. 2. 3. 4. 5.

Ans.

T T F T F

Item

6. 7. 8. 9. 10.

Ans.

F F T T F

Item

11. 12. 13. 14. 15.

Ans.

T F F F T

Item

16. 17. 18. 19. 20.

Ans.

F T T F T

Item

21. 22. 23. 24. 25.

Ans.

F F T F T

Item

26. 27. 28. 29. 30.

Ans.

T F T F T

14 - 6

Test Bank for Accounting Principles, Eighth Edition

MULTIPLE CHOICE 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 a. Stockholders' equity b. Assets c. Liabilities d. Liabilities

37.

Decrease Assets Liabilities Stockholders' equity Assets

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.

Corporations: Dividends, Retained Earnings, and Income Reporting

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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: a. b. c. d.

Stock Splits Increase No change Decrease No change

Stock Dividends No change Decrease Decrease 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.

14 - 8

Test Bank for Accounting Principles, Eighth Edition

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: a. b. c. d.

53.

Total Assets Increase No change Decrease Decrease

Total Liabilities Decrease Increase Increase No change

Total Stockholders' Equity No change Decrease Decrease Increase

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.

Corporations: Dividends, Retained Earnings, and Income Reporting

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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...