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Exam 13: Accounting for Corporations

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Question 41

Multiple Choice

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Which of the following is true of a stock dividend?

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

F) A) and C)
G) C) and D)

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Question 42

Multiple Choice

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Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

A) A debit to Organization Expenses for $5,000.
B) A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
C) A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
D) A debit to Organization Expenses for $4,000.
E) A credit to Common Stock for $5,000.

F) B) and C)
G) A) and C)

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Question 43

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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:

If the dividends account is not recorded as a reduction to Retained Earnings on the date of declaration, the dividends account is closed to Retained Earnings at the end of the accounting period.

A company made an error in calculating and reporting amortization expense in Year 1. The error was discovered in Year 2. The item should be reported as a prior period adjustment:

A corporation with $10 par common stock issues a small stock dividend. The capitalization of retained earnings is equal to:

Stocks that pay relatively large cash dividends on a regular basis are called:

A large stock dividend only occurs when a distribution of more than 50% of previously outstanding shares is issued.

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:

Corporations avoid many of the state regulations and controls that proprietorships and partnerships are subject to.

A class of stock that can usually be issued at any price without creating a minimum legal capital deficiency is called:

Declaration of a stock dividend results in a liability being recorded.

When a corporation has only one class of stock, the stock is called:

Common shareholders always share equally with all other shareholders in dividends.

A company has 50,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $1,470,000, and the par value per common share is $5. The book value per share is:

Explain how to compute dividend yield and discuss how it is used in analysis of a company's financial condition.

Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. $\begin{array}{l}\begin{array} { l r r } &\text { Dividend Declared }\\\text { year 1 } & \$ 20,000 \\\text { year 2 } & \$ 6,000 \\\text { year 3 } & \$ 32,000 \\\end{array}\end{array}$ The amount of dividends paid to preferred and common shareholders in year 1 is:

A liquidating dividend is:

Small stock dividends are recorded at par or stated value.

A stock dividend is a distribution of corporate assets that returns part of the original investment to shareholders.