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.

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.

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

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 of the following statements about property dividends is not true?

Which of the following statements about property dividends is not true?

a. A property dividend is usually in the form of securities of other companies.
b. A property dividend is also called a dividend in kind.
c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.
d. All of these statements are true.


Answer: The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred

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

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

According to the FASB, redeemable preferred stock should be

According to the FASB, redeemable preferred stock should be

a. included with common stock.
b. included as a liability.
c. excluded from the stockholders' equity heading.
d. included as a contra item in stockholders' equity.


Answer: included as a liability.

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a. an increase in current liabilities.
b. an increase in stockholders' equity.
c. a footnote.
d. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.


Answer: a footnote

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

a. declaration of a stock split.
b. declaration of a stock dividend.
c. purchase of treasury stock.
d. payment in full of subscribed stock.


Answer: purchase of treasury stock

An entry is not made on the

An entry is not made on the

a. date of declaration.
b. date of record.
c. date of payment.
d. An entry is made on all of these dates.


Answer: date of record.

Cash dividends are paid on the basis of the number of shares

Cash dividends are paid on the basis of the number of shares

a. authorized.
b. issued.
c. outstanding.
d. outstanding less the number of treasury shares.


Answer: outstanding

Which of the following best describes a possible result of treasury stock transactions by a corporation?

Which of the following best describes a possible result of treasury stock transactions by a corporation?

a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is used.
c. May decrease but not increase retained earnings.
d. May decrease but not increase net income.


Answer: May decrease but not increase retained earnings

Which of the following features of preferred stock makes the security more like debt than an equity instrument?

Which of the following features of preferred stock makes the security more like debt than an equity instrument?

a. Participating
b. Voting
c. Redeemable
d. Noncumulative


Answer: Redeemable

The cumulative feature of preferred stock

The cumulative feature of preferred stock

a. limits the amount of cumulative dividends to the par value of the preferred stock.
b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.


Answer: requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

Porter Corp. purchased its own par value stock on January 1, 2010 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

Porter Corp. purchased its own par value stock on January 1, 2010 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.
c. retained earnings.
d. net income.


Answer: additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.
b. As paid-in capital from treasury stock transactions.
c. As an increase in the amount shown for common stock.
d. As an extraordinary item shown on the income statement.


Answer: As paid-in capital from treasury stock transactions

In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.


Answer: decreased total stockholders' equity.

Treasury shares are

Treasury shares are

a. shares held as an investment by the treasurer of the corporation.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. issued but not outstanding shares.


Answer: issued but not outstanding shares

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value.
b. Paid-in capital in excess of par for the purchase price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.


Answer: Treasury stock for the purchase price.