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Exam 14: Corporations: Dividends, Retained Earnings, and Income Reporting

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Question 1

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The following financial information is available for Makoto Corporation. $\begin{array}{lrr}&2017&2016\\\text { Average common stockholders' equity } & \$ 1,600,000 & \$ 1,200,000 \\\text { Dividends paid to common stockholders } & 50,000 & 30,000 \\\text { Dividends paid to preferred stockholders } & 20,000 & 20,000 \\\text { Net income } & 260,000 & 182,000\end{array}$ The weighted average number of shares of common stock outstanding was 80000 for 2016 and 100000 for 2017. Instructions Calculate earnings per share and return on common stockholders' equity for 2017 and 2016.

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Question 2

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The declaration and distribution of a stock dividend will

A) increase total stockholders' equity.
B) increase total assets.
C) decrease total assets.
D) have no effect on total assets.

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D

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The effect of the declaration of a cash dividend by the board of directors is to $\begin{array} { l c c } &&& \text { Increase } &&&&&& \text { Decrease } \\\end{array}$ A) $\begin{array} { l c c } & \text { Stockholders' equity } && \text { Assets } \\\end{array}$ B) $\begin{array} { l c c } & \text { Assets } &&&&&&&& \text { Liabilities } \\\end{array}$ C) $\begin{array} { l c c } & \text { Liabilities } &&&&&& \text { Stockholders' equity } \\\end{array}$ D) $\begin{array} { l c c } & \text { Liabilities } &&&&&& \text { Assets }\end{array}$

A small stock dividend is defined as

A prior period adjustment for understatement of net income will

The declaration of a stock dividend will

Outstanding stock of the Crevusse Corporation included 40000 shares of $5 par common stock and 20000 shares of 5% $10 par noncumulative preferred stock. In 2016 Crevusse declared and paid dividends of $8000. In 2017 Crevusse declared and paid dividends of $24000. How much of the 2017 dividend was distributed to preferred shareholders?

The following information is available for Blowing Rock Corporation: $\begin{array}{lr}\text { Common Stock ( } \$ 5 \text { par) } & \$ 1,600,000 \\\text { Retained Earnings } & 1,200,000\end{array}$ An 18% stock dividend is declared and paid when the market value was $16 per share. Instructions Compute each of the following after the stock dividend. (a) Total stockholders' equity. (b) Number of shares outstanding.

Identify the effect the declaration and distribution of a stock dividend has on the par value per share.

Mike Mergenthaler asks "Since stock dividends don't change anything why declare them?" What is your answer to Mike?

On January 1 Sly Corporation had 120000 shares of $10 par value common stock outstanding. On March 17 the company declared a 15% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a

Which one of the following is not necessary in order for a corporation to pay a cash dividend?

Ellis Corporation had net income of $500000 and paid dividends of $100000 to common stockholders and $20000 to preferred stockholders in 2017. Ellis Corporation's common stockholders' equity at the beginning and end of 2017 was $1740000 and $2260000 respectively. There are 400000 weighted-average shares of common stock outstanding. Ellis Corporation's earnings per share for 2017 was

Stock dividends and stock splits have the following effects on retained earnings: $\begin{array} {c c } & \text { Stock Splits } & \text { Stock Dividends } \\\end{array}$ A) $\begin{array} {c c } & \text { Increase } && \text { No change } \\\end{array}$ B) $\begin{array} {c c } &\text { No change } & \text { Decrease } \\\end{array}$ C) $\begin{array} {c c } &\text { Decrease } && \text { Decrease } \\\end{array}$ D) $\begin{array} {c c } & \text { No change } & \text { No change }\end{array}$

The entry to record the declaration of a stock dividend increases _______________ and decreases ________________.

Identify which of the following items would be reported as additions (A) or deductions (D) in a Retained Earnings Statement. 1. Net Income 2. Net Loss 3. Cash Dividends 4. Stock Dividends 5. Prior period adjustments to correct for overstatement of prior years' net income 6. Prior period adjustments to correct for understatement of prior years' net income

A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock.

Each of the following decreases retained earnings except a

Regular dividends are declared out of

On January 1 Ecuyer Corporation had 1600000 shares of $10 par value common stock outstanding. On March 31 the company declared a 15% stock dividend. Market value of the stock was $15/share. As a result of this event