Question 1

An entry to appropriate a portion of retained earnings to finance a future plant expansion would include a credit to:

Accepted Answer

A portion of retained earnings is being appropriated for a specific purpose, which is financing a future plant expansion. Therefore, the entry should include a credit to "Retained Earnings Appropriated for Plant Expansion." The other options, such as Paid-in Capital in Excess of Par and Unappropriated Retained Earnings, are not relevant in this scenario.

Question 2

An appropriation to retained earnings reduces total shareholders' equity.

Accepted Answer

An appropriation to retained earnings is an allocation of profits from current earnings to various reserve accounts, such as legal or dividend reserve. It does not result in a reduction of total shareholders' equity, as it is not a distribution of profits to shareholders. Retained earnings themselves are a component of shareholders' equity, so an appropriation to retained earnings would not impact the overall level of shareholders' equity.

Question 3

In the closing process for corporations,net income is closed to the capital account.

Accepted Answer

In the closing process for corporations, net income is closed to retained earnings, not the capital account.

Question 4

Which of the following would require a debit to the Retained Earnings account for a corporation?

Accepted Answer

A net loss of the period would decrease the retained earnings balance and therefore require a debit to the account. The initial investment of stockholders (A) and contributions by new stockholders (D) would increase the retained earnings balance and require a credit to the account. Net income of the period (B) would also increase the retained earnings balance and require a credit to the account.

Question 5

Which of the following statements is true when appropriating retained earnings?

Accepted Answer

Appropriating retained earnings involves dividing retained earnings into two categories: those that are available for dividend distribution and those that are assigned for specific purposes, such as future expansion or debt repayment. It does not directly affect the number of shares, increase cash or other assets, or allow the use of assets for dividends.

Question 6

A prior period adjustment is corrected to the ending balance of Retained Earnings.

Accepted Answer

The answer of A prior period adjustment is corrected to...

Question 7

Appropriations to retained earnings is:

Accepted Answer

Appropriations to retained earnings are not recorded as a contra-asset or contra-liability. They represent a portion of earnings that are set aside for a specific purpose, such as dividends or reserves. Therefore, they are typically disclosed in the notes to the financial statements rather than being recorded as a separate line item on the balance sheet. Appropriations do not affect stockholders' equity directly, so they are not considered a contra-stockholders' equity.

Question 8

Which of the following is prepared to explain the change in the amount of retained earnings between successive balance sheet dates?

Accepted Answer

The statement of stockholders' equity shows the changes in all components of stockholders' equity, including retained earnings, between two balance sheet dates.

Question 9

Changes in retained earnings can result from:

Accepted Answer

Retained earnings change due to net income or net loss, as these directly affect the equity of a company. Purchasing equipment and paying down debt impact assets and liabilities, respectively, but do not directly affect retained earnings.

Question 10

Most companies report restrictions of Retained Earnings by using a footnote to the Retained Earnings account.

Accepted Answer

This is true. Many companies report restrictions of their Retained Earnings in a footnote to the Retained Earnings account on their financial statements, such as restrictions due to legal requirements, debt covenants, or other contractual obligations.

Question 11

Prior period adjustments are not included in the statement of retained earnings.

Accepted Answer

Prior period adjustments are required to be included in the statement of retained earnings to correct any errors in previously reported financial statements.

Question 12

Changes in retained earnings result from effects of prior period adjustments,net income or loss,or dividends paid.

Accepted Answer

The answer of Changes in retained earnings result from effects...

Question 13

At the end of the accounting cycle,net income will be closed into:

Accepted Answer

Net income is closed into retained earnings at the end of the accounting cycle. This represents the portion of earnings that has been retained by the company rather than paid out as dividends to shareholders.

Question 14

Rick's Internet Corporation's balance in Retained Earnings is $50,000.The board of directors directs that $25,000 be appropriated for future business expansion.This will cause total retained earnings to:

Accepted Answer

Appropriating retained earnings for a specific purpose does not change the total amount of retained earnings; it only designates a portion for a specific use.

Question 15

The statement of retained earnings does not include the account Preferred Stock.

Accepted Answer

The statement of retained earnings only includes changes in the balance of the Retained Earnings account, and does not include changes in the Preferred Stock account.

Question 16

A retained earnings appropriation is a restriction of retained earnings by:

Accepted Answer

Retained earnings appropriation is typically set by the board of directors, who determine how much of the company's earnings should be retained for reinvestment or distributed to shareholders as dividends. This decision is made based on the company's financial performance, growth objectives, and other strategic considerations. Therefore, the board of directors is responsible for placing restrictions on retained earnings, not the accountants, senior management, or stockholders.

Question 17

Appropriations of retained earnings are voted upon by the board of directors.

Accepted Answer

Appropriations of retained earnings, such as dividends or reinvestment in the company, are ultimately decided upon by the board of directors.

Question 18

A prior period adjustment for depreciation would affect what account in the stockholders' equity section?

Accepted Answer

A prior period adjustment for depreciation would affect the Retained Earnings account, as it is an adjustment to the past period's net income. It would not affect the Common Stock, Paid-in Capital in Excess of Par Value-Common, or Appropriations accounts.

Question 19

A prior period adjustment would be necessary when:

Accepted Answer

A prior period adjustment is necessary when there is a correction of a material error in the financial statements of a prior period. If depreciation expense was understated in the prior year, it would result in an understatement of the accumulated depreciation and an overstatement of the net income. Therefore, a prior period adjustment would be necessary to correct the error and adjust the financial statement of the prior period. The other options mentioned in the answer choices are not related to prior period adjustments.

Question 20

Appropriations to retained earnings can be:

Accepted Answer

Appropriations to retained earnings are internal decisions by a company's management or board to earmark retained earnings for specific purposes, such as future projects or debt repayment. They do not increase or decrease total retained earnings but rather designate parts of retained earnings for specific uses, thus not fitting strictly into options A, B, or C.

Quiz 19: Corporations: Stock Values,dividends,treasury Stocks,