1.Dividends may be declared and paid in cash or stock. 2.Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts. 3.Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends. 4.Return on common stockholders’ equity is computed by dividing net income by ending stockholders’ equity. 5.Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding. 6.Earnings per share is reported for both preferred and common stock. 7.A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings. 8.Income tax expense and the related liability for income taxes payable are recorded when taxes are paid. 9.Earnings per share is reported only for common stock. MULTIPLE CHOICE QUESTIONS 10.Each of the following decreases retained earnings except a a.cash dividend. b.liquidating dividend. c.stock dividend. d.All of these decrease retained earnings. 11.If a corporation declares a dividend based upon paid-in capital, it is known as a a.scrip dividend. b.property dividend. c.paid dividend. d.liquidating dividend. 12.The effect of the declaration of a cash dividend by the board of directors is to Increase Decrease a.Stockholders' equityAssets b.AssetsLiabilities c.LiabilitiesStockholders' equity d.LiabilitiesAssets 13.Which one of the following events would not require a formal journal entry on a corporation's books? a.2 for 1 stock split b.100% stock dividend c.2% stock dividend d.$1 per share cash dividend 14.If a stockholder receives a dividend consisting of a promissory note, the stockholder has received a a.stock dividend. b.cash dividend. c.contingent dividend. d.scrip dividend. 15.A corporation is committed to a legal obligation when it declares a.a cash dividend. b.either a cash dividend or a stock dividend. c.a stock dividend. d.a stock split. 16.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. 17.Manner, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2005. There were no dividends declared in 2004. The board of directors declares and pays a $50,000 dividend in 2005. What is the amount of dividends received by the common stockholders in 2005? a.$0. b.$30,000. c.$50,000. d.$20,000. 18.Norton, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2004, and December 31, 2005. The board of directors declared and paid a $25,000 dividend in 2004. In 2005, $50,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2005? PreferredCommon a.$0$50,000 b.$30,000$20,000 c.$25,000$25,000 d.$50,000$0 19.When stock dividends are distributed, a.Common Stock Dividends Distributable is decreased. b.Retained Earnings is decreased. c.Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend. d.no entry is necessary if it is a large stock dividend. 20.The per share amount normally assigned by the board of directors to a small stock dividend is a.the market value of the stock on the date of declaration. b.the average price paid by stockholders on outstanding shares. c.the par or stated value of the stock. d.zero. 21.Irwin, Inc. had 300,000 shares of common stock outstanding before a stock split occurred, and 600,000 shares outstanding after the stock split. The stock split was a.3 for 6. b.6 for 1. c.1 for 6. d.2 for 1. 22.A prior period adjustment that corrects income of a prior period requires that an entry be made to a.an income statement account. b.a current year revenue or expense account. c.the retained earnings account. d.an asset account. 23.A net loss a.occurs if operating expenses exceed cost of goods sold. b.is not closed to Retained Earnings if it would result in a debit balance. c.is closed to Retained Earnings even if it would result in a debit balance. d.is closed to the paid-in capital account of the stockholders' equity section of the balance sheet. 24.Retained earnings is increased by each of the following except a.net income. b.prior period adjustments. c.some disposals of treasury stock. d.All of these increase retained earnings. 25.In the stockholders' equity section of the balance sheet, a.Common Stock Dividends Distributable will be classified as part of addition

1.Dividends may be declared and paid in cash or stock.

2.Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.

3.Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.

4.Return on common stockholders’ equity is computed by dividing net income by ending stockholders’ equity.

5.Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding.

6.Earnings per share is reported for both preferred and common stock.

7.A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.

8.Income tax expense and the related liability for income taxes payable are recorded when taxes are paid.

9.Earnings per share is reported only for common stock.

MULTIPLE CHOICE QUESTIONS
10.Each of the following decreases retained earnings except a
a.cash dividend.
b.liquidating dividend.
c.stock dividend.
d.All of these decrease retained earnings.

11.If a corporation declares a dividend based upon paid-in capital, it is known as a
a.scrip dividend.
b.property dividend.
c.paid dividend.
d.liquidating dividend.

12.The effect of the declaration of a cash dividend by the board of directors is to
Increase Decrease
a.Stockholders' equityAssets
b.AssetsLiabilities
c.LiabilitiesStockholders' equity
d.LiabilitiesAssets

13.Which one of the following events would not require a formal journal entry on a corporation's books?
a.2 for 1 stock split
b.100% stock dividend
c.2% stock dividend
d.$1 per share cash dividend

14.If a stockholder receives a dividend consisting of a promissory note, the stockholder has received a
a.stock dividend.
b.cash dividend.
c.contingent dividend.
d.scrip dividend.

15.A corporation is committed to a legal obligation when it declares
a.a cash dividend.
b.either a cash dividend or a stock dividend.
c.a stock dividend.
d.a stock split.

16.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.

17.Manner, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2005. There were no dividends declared in 2004. The board of directors declares and pays a $50,000 dividend in 2005. What is the amount of dividends received by the common stockholders in 2005?
a.$0.
b.$30,000.
c.$50,000.
d.$20,000.

18.Norton, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2004, and December 31, 2005. The board of directors declared and paid a $25,000 dividend in 2004. In 2005, $50,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2005?
PreferredCommon
a.$0$50,000
b.$30,000$20,000
c.$25,000$25,000
d.$50,000$0

19.When stock dividends are distributed,
a.Common Stock Dividends Distributable is decreased.
b.Retained Earnings is decreased.
c.Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend.
d.no entry is necessary if it is a large stock dividend.

20.The per share amount normally assigned by the board of directors to a small stock dividend is
a.the market value of the stock on the date of declaration.
b.the average price paid by stockholders on outstanding shares.
c.the par or stated value of the stock.
d.zero.

21.Irwin, Inc. had 300,000 shares of common stock outstanding before a stock split occurred, and 600,000 shares outstanding after the stock split. The stock split was
a.3 for 6.
b.6 for 1.
c.1 for 6.
d.2 for 1.

22.A prior period adjustment that corrects income of a prior period requires that an entry be made to
a.an income statement account.
b.a current year revenue or expense account.
c.the retained earnings account.
d.an asset account.

23.A net loss
a.occurs if operating expenses exceed cost of goods sold.
b.is not closed to Retained Earnings if it would result in a debit balance.
c.is closed to Retained Earnings even if it would result in a debit balance.
d.is closed to the paid-in capital account of the stockholders' equity section of the balance sheet.

24.Retained earnings is increased by each of the following except
a.net income.
b.prior period adjustments.
c.some disposals of treasury stock.
d.All of these increase retained earnings.

25.In the stockholders' equity section of the balance sheet,
a.Common Stock Dividends Distributable will be classified as part of addition