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

A large stock dividend and stock split can frequently have the same effect on the market price of a corporation's stock. Explain how stock dividends and stock splits affect the market price of a corporation's stock.

A stock split

The following information is available for Westglow Corporation for the year ended December 31 2017: Corrected overstatement of 2016 depreciation expense 15,000 Cost of goods sold 700,000 Declared cash dividends 50,000 Operating expenses 170,000 Other expenses and losses 40,000 Other revenues and gains 50,000 Sales revenue 1,200,000 Tax rate 40\% Instructions Prepare a corporate income statement in good form.

A corporation incurs income tax expense only if it pays dividends to stockholders.

Dividends Payable is classified as a

The ultimate effect of incurring an expense is to reduce stockholders' equity. The declaration of a cash dividend also reduces stockholders' equity. Explain the difference between an expense and a cash dividend and explain why they have the same effect on stockholders' equity.

Sebold Manufacturing declared a 10% stock dividend when it had 700000 shares of $3 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to

Which of the following show the proper effect of a stock split and a stock dividend? Item Stock Split Stock Dividend A) Total paid-in capital Increase Increase B) Total retained earnings Decrease Decrease C) Total par value (common) Decrease Increase D) Par value per share Decrease No change

Why must a corporation have sufficient retained earnings before it may declare cash dividends?

Bento Inc. had 500000 shares of common stock outstanding before a stock split occurred and 1500000 shares outstanding after the stock split. The stock split was

On November 1 2017 Taxton Corporation's stockholders' equity section is as follows: Common stock, \ 10 par value \ 600,000 Paid-in capital in excess of par 205,000 Retained earnings Total stockholders' equity On November 1 Taxton declares and distributes a 15% stock dividend when the market value of the stock is $13 per share. Instructions Indicate the balances in the stockholders' equity accounts after the stock dividend has been distributed.

The stockholders' equity section of Echota Corporation at December 31 2016 included the following: $5 \%$ preferred stock, $\$ 100$ par value, cumulative, 10,000 shares authorized, 8,000 shares issued and outstanding $\quad$ $\quad$ $\quad$$\$ 800,000$ Common stock, $\$ 10$ par value, 250,000 shares authorized, 200,000 shares issued and outstanding $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\$ 2,000,000$ Dividends were not declared on the preferred stock in 2016 and are in arrears. On September 15 2017 the board of directors of Echota Corporation declared dividends on the preferred stock for 2016 and 2017 to stockholders of record on October 1 2017 payable on October 15 2017. On November 1 2017 the board of directors declared a $.75 per share dividend on the common stock payable November 30 2017 to stockholders of record on November 15 2017. Instructions Prepare the journal entries that should be made by Echota Corporation on the dates indicated below: $5 \%$ preferred stock, $\$ 100$ par value, cumulative, 10,000 shares authorized, 8,000 shares issued and outstanding $\quad$ $\quad$ $\quad$$\$ 800,000$ Common stock, $\$ 10$ par value, 250,000 shares authorized, 200,000 shares issued and outstanding $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\$ 2,000,000$

A major difference among corporations proprietorships and partnerships is that a corporation's income statement reports income tax expense.

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

A prior period adjustment that corrects income of a prior period requires that an entry be made to

Cash dividends are not a liability of the corporation until they are declared by the board of directors.

If the board of directors authorizes a $1000000 restriction of retained earnings for a future plant expansion the effect of this action is to

Earnings per share is reported only for common stock.

Three important dates associated with dividends are the: (1)__________________ (2)__________________ and (3)__________________.

A correction in income of a prior period involves either a debit or credit to the Retained Earnings account.