Question 1

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 do not decrease the number of shares outstanding; rather, they increase the number of shares outstanding while reducing the value per share.

Question 2

A company's board of directors votes to declare a cash dividend of $.75 per share of common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:
A)$10,250.
B)$14,625.
C)$7,125.
D)$7,500.
E)$11,250.

Accepted Answer

The answer of A company's board of directors votes to...

Question 3

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 answer of Hutter Corporation declared a $0.50 per share...

Question 4

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 contributed 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 5

A stock dividend is recorded with a transfer from:
A)Contributed capital to retained earnings.
B)Retained earnings to contributed 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 to existing shareholders, which is why it is recorded as a transfer from retained earnings to contributed capital. It does not affect assets, and there is no transfer from contributed capital to retained earnings.

Question 6

A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the payment of the cash dividend is:
A)Debit Dividend Expense $12,000; credit Cash $12,000.
B)Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C)Debit Common Dividend Payable $12,000; credit Cash $12,000.
D)Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E)Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.

Accepted Answer

When a company declares a cash dividend, it creates a liability called Common Dividend Payable. The entry to record the payment of cash dividend reduces cash (asset) and Common Dividend Payable (liability). Therefore, the entry would be Debit Common Dividend Payable $12,000; credit Cash $12,000.

Question 7

Preferred stock that the issuing corporation has the option to retire by paying a specified amount to the preferred stockholders is called:
A)Convertible preferred stock.
B)Callable preferred stock.
C)Premium stock.
D)Cumulative preferred stock.
E)Participating preferred stock.

Accepted Answer

Callable preferred stock gives the issuing corporation the option to retire the stock by paying a specified amount to the preferred stockholders.

Question 8

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 this dividend 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.Retained earnings: 50,000 shares * 10% × $27 = $135,000

Accepted Answer

A 10% stock dividend means that for every 10 shares held, the shareholder will receive an additional share. In this case, Global Corporation had 50,000 shares outstanding, so the dividend would be 5,000 shares (10% of 50,000). The market value of each share was $27, so the total value of the dividend is 5,000 shares * $27/share = $135,000.

The entry to record a stock dividend involves transferring a portion of retained earnings to common stock dividend distributable and/or paid-in capital in excess of par value, depending on the par value and market value of the stock. Since Global Corporation has a $20 par value, the stock dividend exceeds the par value and therefore part of the dividend will be recorded as paid-in capital in excess of par value. The entry to record the dividend is:

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

This entry reflects the transfer of $100,000 from retained earnings to common stock dividend distributable (representing the par value of the additional shares) and $35,000 to paid-in capital in excess of par value (representing the excess of the market value over the par value of the additional shares).

Question 9

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

The answer of On September 1, Ziegler Corporation had 50,000...

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

A stock dividend does not affect total equity but transfers amounts between the components of equity. It increases the number of shares outstanding while decreasing the stock's per-share value. The decision to declare a stock dividend resides with the company's board of directors, not the shareholders. It is not a liability on the balance sheet, and it does not reduce a corporation's assets or stockholders' equity.

Question 11

Achieving an increased rate of 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 strategy is known as financial leverage, which allows a company to increase the return on common stock by using borrowed funds to invest in assets with a higher rate of return than the cost of borrowing. By paying dividends on preferred stock at a rate lower than the return earned from the assets funded by the preferred stock issuance, the company can benefit from the difference and increase the earnings available to common stockholders. This approach is a common practice in corporate finance and can help to maximize shareholder value. The other options, such as discount or premium on stock, preemptive right, or capital gain, do not apply to this scenario.

Question 12

A liability for dividends exists:
A)When cumulative preferred stock is sold.
B)On the date of declaration.
C)On the date of record.
D)On the date of payment.
E)For dividends in arrears on cumulative preferred stock.

Accepted Answer

The answer of A liability for dividends exists:
A)When cumulative preferred...

Question 13

Preferred stock that 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 gives the holder the right to receive all past unpaid dividends before any dividends can be paid to common stockholders. This means that if a company misses or defers a dividend payment, the cumulative preferred shareholders have the right to receive those dividends before any dividends are paid to common shareholders, even if the company does not declare the dividends.

Question 14

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 the preferred stockholders to participate in any dividends beyond the stated amount or percentage, sharing with common shareholders. Cumulative preferred stock means that if a dividend is skipped, it will accumulate and must be paid in the future. Callable preferred stock means the issuer can buy back the stock at a certain price. Convertible preferred stock means the stock can be converted into common stock. Preferential preferred stock is not a commonly used term in finance.

Question 15

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

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 stock dividend.

Question 16

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 journal entry to record the declaration of cash dividend would be to debit Retained Earnings and credit Common Dividends Payable.

The calculation for the amount to be debited to Retained Earnings is: 
($0.50 per share x 8,000 shares outstanding) = $4,000

Therefore, the correct entry is:
Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.

Option B is the journal entry that would be made when the dividend is paid, not when it is declared. Option C and E overstate the number of shares outstanding, and Option D overstates the amount of the dividend declaration.

Question 17

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 answer of Ultimate Sportswear has $100,000 of 8% noncumulative,...

Question 18

A liquidating dividend is:
A)Only declared when a corporation closes down.
B)A return of a portion of the original investment back to the stockholders.
C)Not allowed under federal law.
D)Only paid in assets other than cash.
E)Only paid in shares of stock.

Accepted Answer

A liquidating dividend is a type of dividend paid to shareholders when a company is going out of business and all of its assets are being liquidated. The dividend is paid out of the company’s remaining assets to its shareholders as a return of a portion of their original investment. Therefore, choice (B) is the correct answer.

Question 19

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.3,000/10,000 shares = large stock dividend of 30%.

Accepted Answer

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

Question 20

A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the declaration of the cash dividend is:
A)Debit Dividend Expense $12,000; credit Cash $12,000.
B)Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C)Debit Common Dividend Payable $12,000; credit Cash $12,000.
D)Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E)Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.

Accepted Answer

The answer of A company's board of directors votes to...

Quiz 11: Reporting and Analyzing Equity

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

A company's board of directors votes to declare a cash dividend of $.75 per share of common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:

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

A stock dividend is recorded with a transfer from:

A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the payment of the cash dividend is:

Preferred stock that the issuing corporation has the option to retire by paying a specified amount to the preferred stockholders is called:

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 this dividend is:

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:

Which of the following is true of a stock dividend?

Achieving an increased rate of 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 liability for dividends exists:

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

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

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 liquidating 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:

A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the declaration of the cash dividend is: