Chapter 14

Entries for cash dividends are required on the: (a) declaration date and the payment date. (b) record date and the payment date. (c) declaration date, record date, and payment date. (d) declaration date and the record date.

Preferred stock may have priority over common stock except in: (a) dividends. (b) assets in the event of liquidation. (c) cumulative dividend features. (d) voting.

Encore Inc. declared an \(\$ 80,000\) cash dividend. It currently has 3,000 shares of \(7 \%, \$ 100\) par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Encore distribute to the common stockholders? (a) \(\$ 38,000\). (c) \(\$ 59,000\). (b) \(\$ 42,000\). (d) None.

Which of the following statements about small stock dividends is true? (a) A debit to Retained Earnings for the par value of the shares issued should be made. (b) A small stock dividend decreases total stockholders' equity. (c) Market price per share should be assigned to the dividend shares. (d) A small stock dividend ordinarily will have an effect on par value per share of stock.

Which of the following statements about a 3 -for-1 stock split is true? (a) It will triple the market price of the stock. (b) It will triple the amount of total stockholders' equity. (c) It will have no effect on total stockholders' equity. (d) It requires the company to distribute cash.

Raptor Inc. has retained earnings of \(\$ 500,000\) and total stockholders' equity of \(\$ 2,000,000\). It has 100,000 shares of \(\$ 8\) par value common stock outstanding, which is currently selling for \(\$ 30\) per share. If Raptor declares a \(10 \%\) stock dividend on its common stock: (a) net income will decrease by \(\$ 80,000\). (b) retained earnings will decrease by \(\$ 80,000\) and total stockholders' equity will increase by \(\$ 80,000\). (c) retained earnings will decrease by \(\$ 300,000\) and total stockholders' equity will increase by \(\$ 300,000\). (d) retained earnings will decrease by \(\$ 300,000\) and total paid-in capital will increase by \(\$ 300,000\).

Which of the following can cause a restriction in retained earnings? (a) State laws regarding treasury stock. (b) Long-term debt contract terms. (c) Authorizations by the board of directors in light of planned expansion of corporate facilities. (d) All of these answer choices are correct.

All but one of the following is reported in a retained earnings statement. The exception is: (a) cash and stock dividends. (b) net income and net loss. (c) sales revenue. (d) prior period adjustments.

A prior period adjustment is: (a) reported in the income statement as a nontypical item. (b) a correction of an error that is recorded directly to retained earnings. (c) reported directly in the stockholders' equity section. (d) reported in the retained earnings statement as an adjustment of the ending balance of retained earnings.

In the stockholders' equity section, Common Stock Dividends Distributable is reported as a(n): (a) deduction from total paid-in capital and retained earnings. (b) addition to additional paid-in capital. (c) deduction from retained earnings. (d) addition to capital stock.

The return on common stockholders' equity is defined as: (a) net income divided by total assets. (b) cash dividends divided by average common stockholders' equity. (c) income available to common stockholders divided by average common stockholders' equity. (d) None of these is correct.

During 2017, Talon Inc. had sales revenue \(\$ 376,000\), gross profit \(\$ 176,000\), operating expenses \(\$ 66,000\), cash dividends \(\$ 30,000\), other expenses and losses \(\$ 20,000\). Its corporate tax rate is \(30 \%\). What was Talon's income tax expense for the year? (a) \(\$ 18,000\). (c) \(\$ 112,800\). (b) \(\$ 52,800\). (d) \(\$ 27,000\).

Corporation income statements may be the same as the income statements for unincorporated companies except for: (a) gross profit. (c) operating income. (b) income tax expense. (d) net sales.

If everything else is held constant, earnings per share is increased by: (a) the payment of a cash dividend to common shareholders. (b) the payment of a cash dividend to preferred shareholders. (c) the issuance of new shares of common stock. (d) the purchase of treasury stock.

The income statement for Nadeen, Inc. shows income before income taxes \(\$ 700,000\), income tax expense \(\$ 210,000\), and net income \(\$ 490,000\). If Nadeen has 100,000 shares of common stock outstanding throughout the year, earnings per share is: (a) \(\$ 7.00\). (c) \(\$ 2.10\). (b) \(\$ 4.90\). (d) No correct answer is given.