Question 1

Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record the dividend declaration is:
A)Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $135,000.
B)Debit Retained Earnings $135,000; credit Cash $135,000.
C)Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000; credit Paid-In Capital in Excess of Par Value,Common Stock $35,000.
D)Debit Retained Earnings $100,000; credit Common Stock Dividend Distributable $100,000.
E)No entry is made until the stock is issued.

Accepted Answer

The declaration of a stock dividend requires transfer of a portion of retained earnings to common stock and the creation of a liability for the common stock dividend distributable. The amount transferred to common stock is based on the par value of the new shares issued, while any excess of the market value (in this case $7/share) is recorded as a credit to paid-in capital in excess of par value. Therefore, the correct entry is to debit Retained Earnings $135,000, credit Common Stock Dividend Distributable $100,000, credit Paid-In Capital in Excess of Par Value, Common Stock $35,000.

Question 2

Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:
A)Cumulative preferred stock.
B)Callable preferred stock.
C)Participating preferred stock.
D)Convertible preferred stock.
E)Preferential preferred stock.

Accepted Answer

Participating preferred stock allows preferred stockholders to share in any dividends in excess of the percent or dollar amount stated on the preferred stock. Cumulative preferred stock entitles the holder to receive all past unpaid dividends before any dividends can be paid to common shareholders. Callable preferred stock gives the issuer the right to call and retire the preferred stock. Convertible preferred stock allows the holder to convert the preferred stock into a specific number of common shares. Preferential preferred stock is not a commonly used term in finance.

Question 3

On September 1,Ziegler Corporation had 50,000 shares of $5 par value common stock,and $1,500,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:
A)Debit Retained Earnings $750,000; credit Common Stock Split Distributable $750,000.
B)Debit Retained Earnings $750,000; credit Common Stock $750,000.
C)Debit Retained Earnings $250,000; credit Common Stock $250,000.
D)Debit Retained Earnings $250,000; credit Stock Split Payable $250,000.
E)No entry is made for this transaction.

Accepted Answer

A stock split does not affect the balance sheet accounts directly. It increases the number of shares outstanding and decreases the par value per share proportionally, but does not change the total par value of shares outstanding or retained earnings. Therefore, no journal entry is required to record a stock split.

Question 4

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:
A)Participating preferred stock.
B)Callable preferred stock.
C)Cumulative preferred stock.
D)Convertible preferred stock.
E)Noncumulative preferred stock.

Accepted Answer

Noncumulative preferred stock does not accumulate unpaid dividends. If a dividend is not declared in a given year, shareholders of noncumulative preferred stock lose the right to those dividends.

Question 5

Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:
A)Financial leverage.
B)Discount on stock.
C)Premium on stock.
D)Preemptive right.
E)Capital gain.

Accepted Answer

This is an example of financial leverage, where a company is using borrowed funds (preferred stock) to generate a higher return on common stock. By paying dividends on preferred stock at a rate lower than the rate earned from the assets invested, the company is able to increase the return on the common stock.

Question 6

Gracey's Department Stores has $200,000 of 6% noncumulative,nonparticipating,preferred stock outstanding.Gracey's also has $600,000 of common stock outstanding.During its first year,the company paid cash dividends of $30,000.This dividend should be distributed as follows:
A)$15,000 preferred; $15,000 common.
B)$6,000 preferred; $24,000 common.
C)$30,000 preferred; $0 common.
D)$12,000 preferred; $18,000 common.
E)$0 preferred; $30,000 common.

Accepted Answer

First, we need to determine how much of the $30,000 dividend goes to the preferred stockholders. Since the preferred stock is noncumulative and nonparticipating, it only receives its stated dividend of 6% of $200,000 or $12,000. We subtract this from the total dividend ($30,000 - $12,000 = $18,000) to get the amount that goes to common stockholders. 
Next, we need to divide the remaining $18,000 between the $600,000 of common stock outstanding. To do this, we divide $18,000 by $600,000 to get a dividend of 3% per share. 
Therefore, the preferred stockholders receive $12,000 and the common stockholders receive $18,000, which is divided among them based on the number of shares they own. Thus, the answer is D, $12,000 to preferred and $18,000 to common.

Question 7

Ultimate Sportswear has $100,000 of 8% noncumulative,nonparticipating,preferred stock outstanding.Ultimate Sportswear also has $500,000 of common stock outstanding.In the company's first year of operation,no dividends were paid.During the second year,the company paid cash dividends of $30,000.This dividend should be distributed as follows:
A)$8,000 preferred; $22,000 common.
B)$16,000 preferred; $14,000 common.
C)$7,500 preferred; $22,500 common.
D)$15,000 preferred; $15,000 common.
E)$0 preferred; $30,000 common.

Accepted Answer

The preferred stock is noncumulative, meaning unpaid dividends from the first year do not accumulate into the second year. The preferred dividend is calculated as 8% of $100,000, which equals $8,000. The remaining $22,000 ($30,000 - $8,000) is distributed to common stockholders.

Question 8

Hutter Corporation declared a $0.50 per share cash dividend on its common shares.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:
A)Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B)Debit Common Dividends Payable $4,000; credit Cash $4,000.
C)Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D)Debit Common Dividends Payable $4,500; credit Cash $4,500.
E)Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.

Accepted Answer

The correct journal entry for declaring a dividend involves debiting Retained Earnings and crediting Dividends Payable. The amount is calculated based on the dividend per share ($0.50) times the number of shares outstanding (8,000), which equals $4,000.

Question 9

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:
A)Stock dividend.
B)Stock subscription.
C)Premium on stock.
D)Discount on stock.
E)Treasury stock.

Accepted Answer

The distribution of additional shares of a corporation's own stock to its stockholders without receiving any payment in return is known as a stock dividend. This is an alternative to cash dividends and does not result in any increase in the company's assets or liabilities.

Question 10

Which of the following is true of a stock dividend?
A)It is a liability on the balance sheet.
B)The decision to declare a stock dividend resides with the shareholders.
C)Transfers a portion of equity from retained earnings to a cash reserve account.
D)Does not affect total equity,but transfer amounts between the components of equity.
E)Reduces a corporation's assets and stockholders' equity.

Accepted Answer

Stock dividends do not affect the total equity of a corporation but merely reallocate amounts within the equity section, from retained earnings to common stock or additional paid-in capital.

Question 11

Torino Company has 10,000 shares of $5 par value,4% cumulative and nonparticipating preferred stock and 100,000 shares of $10 par value common stock outstanding.The company paid total cash dividends of $1,000 in its first year of operation.The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:
A)$1,000.
B)$2,000.
C)$3,000.
D)$4,000.
E)$0.

Accepted Answer

The answer of Torino Company has 10,000 shares of $5...

Question 12

Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:
A)Noncumulative preferred stock.
B)Participating preferred stock.
C)Callable preferred stock.
D)Cumulative preferred stock.
E)Convertible preferred stock.

Accepted Answer

Cumulative preferred stock confers rights to prior periods' unpaid dividends even if they were not declared.

Question 13

A stock dividend is recorded with a transfer from:
A)Contributed capital to retained earnings.
B)Retained earnings to paid-in capital.
C)Retained earnings to assets.
D)Contributed capital to assets.
E)Assets to contributed capital.

Accepted Answer

A stock dividend is a distribution of additional shares of stock to existing shareholders. This does not result in any change to the total amount of retained earnings or assets of the company. Instead, the stock dividend is recorded as a transfer from retained earnings to paid-in capital, as it represents a portion of the company's earnings that are being returned to shareholders in the form of additional shares of stock. This transfer reduces retained earnings and increases the amount of paid-in capital on the balance sheet.

Question 14

Odessa Corporation had 20,000 shares of $2 par value common stock outstanding on July 1.On that day,the board of directors declared a 10% stock dividend when the market value of each share was $9.The stock dividend is to be distributed on July 20 to stockholders of record on July 10.The entry to record the issuance of the shares on July 20 is:
A)Debit Common Stock Dividends Distributable $18,000; credit Common Stock $18,000.
B)Debit Retained Earnings $18,000; credit Common Stock Dividends Distributable $4,000; credit Paid-In Capital in Excess of Par Value,Common Stock $14,000.
C)Debit Retained Earnings $18,000; credit Common Stock $4,000; credit Paid-In Capital in Excess of Par Value,Common Stock $14,000.
D)Debit Retained Earnings $18,000; credit Common Stock $18,000.
E)Debit Common Stock Dividends Distributable $4,000; credit Common Stock $4,000.

Accepted Answer

The correct entry for issuing a stock dividend involves moving the value from Common Stock Dividends Distributable to Common Stock. Since it's a 10% dividend on 20,000 shares, 2,000 shares are issued at $2 par value, totaling $4,000.

Question 15

Preferred stock that allows preferred stockholders to share with common stockholders any dividends paid in excess of the percent or dollar amount stated on the preferred stock is called:
A)Convertible preferred stock.
B)Participating preferred stock.
C)Premium stock.
D)Cumulative preferred stock.
E)Common stock .

Accepted Answer

This type of preferred stock is called participating preferred stock. It allows preferred stockholders to receive additional dividends beyond the stated amount if the company has excess profits. This enables preferred stockholders to share in the success of the company.

Question 16

A corporation declared and issued a 15% stock dividend on October 1.The following information was available immediately prior to the dividend:  The amount that paid-in capital will increase (decrease)as a result of recording this stock dividend is:
A)$45,000.
B)$135,000.
C)$(45,000).
D)$(135,000).
E)$0.

Accepted Answer

The answer of A corporation declared and issued a 15%...

Question 17

Eastline Corporation had 10,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 3,000 shares.At the time of the stock dividend,the market value per share was $12.The entry to record this dividend is:
A)Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $36,000.
B)Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $30,000; credit Paid-In Capital in Excess of Par Value,Common Stock $6,000.
C)Debit Common Stock Dividend Distributable $36,000; credit Retained Earnings $36,000.
D)Debit Retained Earnings $30,000; credit Common Stock Dividend Distributable $30,000.
E)No entry is needed.

Accepted Answer

The answer of Eastline Corporation had 10,000 shares of $10...

Question 18

Odessa Corporation had 20,000 shares of $2 par value common stock outstanding on July 1.On that day,the board of directors declared a 10% stock dividend when the market value of each share was $9.The stock dividend is to be distributed on July 20 to stockholders of record on July 10.The entry to record the dividend declaration is:
A)Debit Retained Earnings $18,000; credit Common Stock Dividend Distributable $18,000.
B)Debit Retained Earnings $18,000; credit Common Stock Dividends Distributable $4,000; credit Paid-In Capital in Excess of Par Value,Common Stock $14,000.
C)Debit Retained Earnings $18,000; credit Common Stock $4,000; credit Paid-In Capital in Excess of Par Value,Common Stock $14,000.
D)Debit Retained Earnings $18,000; credit Common Stock $18,000.
E)No entry is made until the stock is issued.

Accepted Answer

A 10% stock dividend means that the company will issue an additional 2,000 shares (10% x 20,000) to the stockholders. The market value of each share is $9, so the total value of the dividend is $18,000 (2,000 x $9). The entry to record the declaration of the dividend includes a debit to Retained Earnings for $18,000 (to decrease equity), a credit to Common Stock Dividends Distributable for $4,000 (to increase current liabilities), and a credit to Paid-In Capital in Excess of Par Value, Common Stock for $14,000 (to increase equity). This is because the common stock dividend distributable account only reflects the par value of the additional shares to be issued, while the excess value is credited to paid-in capital. Therefore, the correct answer is B.

Question 19

All of the following statements regarding stock dividends are true except:
A)Directors can use stock dividends to keep the market price of the stock affordable.
B)Stock dividends provide evidence of management's confidence that the company is doing well.
C)Stock dividends do not reduce assets or equity.
D)Stock dividends decrease the number of shares outstanding.
E)Stock dividends transfer a portion of equity from retained earnings to contributed capital.

Accepted Answer

Stock dividends actually increase the number of shares outstanding, as shareholders receive additional shares instead of cash dividends. Therefore, statement D is incorrect. All of the other statements are true regarding stock dividends.

Question 20

Hutter Corporation declared a $0.50 per share cash dividend on its common shares.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend payment is:
A)Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B)Debit Common Dividends Payable $4,000; credit Cash $4,000.
C)Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D)Debit Common Dividends Payable $4,500; credit Cash $4,500.
E)Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.

Accepted Answer

The correct journal entry to record the payment of the dividend is to debit Common Dividends Payable and credit Cash, reflecting the cash outflow to pay the dividends. The amount is $4,000 because the dividend is $0.50 per share on 8,000 outstanding shares (0.50 * 8,000 = $4,000).

Quiz 11: Reporting and Analyzing Equity

Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record the dividend declaration is:

Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:

On September 1,Ziegler Corporation had 50,000 shares of $5 par value common stock,and $1,500,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:

Gracey's Department Stores has $200,000 of 6% noncumulative,nonparticipating,preferred stock outstanding.Gracey's also has $600,000 of common stock outstanding.During its first year,the company paid cash dividends of $30,000.This dividend should be distributed as follows:

Hutter Corporation declared a $0.50 per share cash dividend on its common shares.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

Which of the following is true of a stock dividend?

Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:

A stock dividend is recorded with a transfer from:

Preferred stock that allows preferred stockholders to share with common stockholders any dividends paid in excess of the percent or dollar amount stated on the preferred stock is called:

A corporation declared and issued a 15% stock dividend on October 1.The following information was available immediately prior to the dividend: The amount that paid-in capital will increase (decrease) as a result of recording this stock dividend is:

Eastline Corporation had 10,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 3,000 shares.At the time of the stock dividend,the market value per share was $12.The entry to record this dividend is:

All of the following statements regarding stock dividends are true except:

Hutter Corporation declared a $0.50 per share cash dividend on its common shares.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend payment is: