How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

a. Note disclosure
b. Increase in stockholders' equity
c. Increase in current liabilities
d. Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance


Answer: Note disclosure

Noncumulative preferred dividends in arrears

Noncumulative preferred dividends in arrears

a. are not paid or disclosed.
b. must be paid before any other cash dividends can be distributed.
c. are disclosed as a liability until paid.
d. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.


Answer: are not paid or disclosed

Dividends are not paid on

Dividends are not paid on

a. noncumulative preferred stock.
b. nonparticipating preferred stock.
c. treasury common stock.
d. Dividends are paid on all of these.


Answer: treasury common stock

Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

a. book value per share.
b. par value per share.
c. stated value per share.
d. market value per share.


Answer: book value per share

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.
b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.
c. the payment of a previously declared cash dividend on the common stock.
d. a 2-for-1 split of the common stock.


Answer: the payment of a previously declared cash dividend on the common stock

The payout ratio can be calculated by dividing

The payout ratio can be calculated by dividing

a. dividends per share by earnings per share.
b. cash dividends by net income less preferred dividends.
c. cash dividends by market price per share.
d. dividends per share by earnings per share and dividing cash dividends by net income less preferred dividends.


Answer: cash dividends by net income less preferred dividends

The rate of return on common stock equity is calculated by dividing

The rate of return on common stock equity is calculated by dividing 

a. net income less preferred dividends by average common stockholders' equity.
b. net income by average common stockholders' equity.
c. net income less preferred dividends by ending common stockholders' equity.
d. net income by ending common stockholders' equity.


Answer: net income less preferred dividends by average common stockholders' equity

Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

a. Dividend preferences
b. Liquidation preferences
c. Call prices
d. Conversion or exercise prices


Answer: Liquidation preferences

What effect does the issuance of a 2-for-1 stock split have on each of the following?

What effect does the issuance of a 2-for-1 stock split have on each of the following?

Par Value per Share Retained Earnings


a. No effect No effect
b. Increase No effect
c. Decrease No effect
d. Decrease Decrease


Answer: Decrease No effect

A feature common to both stock splits and stock dividends is

A feature common to both stock splits and stock dividends is

a. a transfer to earned capital of a corporation.
b. that there is no effect on total stockholders' equity.
c. an increase in total liabilities of a corporation.
d. a reduction in the contributed capital of a corporation.


Answer: that there is no effect on total stockholders' equity

The balance in Common Stock Dividend Distributable should be reported as a(n)

The balance in Common Stock Dividend Distributable should be reported as a(n)

a. deduction from common stock issued.
b. addition to capital stock.
c. current liability.
d. contra current asset.


Answer: addition to capital stock.

At the date of declaration of a small common stock dividend, the entry should not include

At the date of declaration of a small common stock dividend, the entry should not include

a. a credit to Common Stock Dividend Payable.
b. a credit to Paid-in Capital in Excess of Par.
c. a debit to Retained Earnings.
d. All of these are acceptable.


Answer: a credit to Common Stock Dividend Payable

The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the

The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the

a. market value of the shares issued.
b. book value of the shares issued.
c. minimum legal requirements.
d. par or stated value of the shares issued.


Answer: market value of the shares issued

Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

a. There should be no capitalization of retained earnings.
b. Par value
c. Market value on the declaration date
d. Market value on the payment date


Answer: Par value

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

a. increases common stock outstanding and increases total stockholders' equity.
b. decreases retained earnings but does not change total stockholders' equity.
c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity.
d. increases retained earnings and increases total stockholders' equity.


Answer: decreases retained earnings but does not change total stockholders' equity

Which dividends do not reduce stockholders' equity?

Which dividends do not reduce stockholders' equity?

a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends


Answer: Stock dividends

If management wishes to "capitalize" part of the earnings, it may issue a

If management wishes to "capitalize" part of the earnings, it may issue a

a. cash dividend.
b. stock dividend.
c. property dividend.
d. liquidating dividend.


Answer: stock dividend.

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

a. Retained Earnings.
b. a paid-in capital account.
c. Accumulated Depletion.
d. Accumulated Depreciation.


Answer: a paid-in capital account.

A dividend which is a return to stockholders of a portion of their original investments is a

A dividend which is a return to stockholders of a portion of their original investments is a

a. liquidating dividend.
b. property dividend.
c. liability dividend.
d. participating dividend.


Answer: liquidating dividend

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

a. property dividend.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.


Answer: property dividend