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

Farber Company has 24000 shares of $1 par common stock issued and outstanding. The company also has 2000 shares of $100 par 4% cumulative preferred stock outstanding. The company did not pay the preferred dividends in 2015 or 2016. What amount of dividends must the company pay the preferred shareholders in 2017 if they wish to pay the common stockholders a dividend?

Jason Gorni the president and CEO of Better Earth Inc. a waste management firm was recently hospitalized suffering from exhaustion and a heart ailment. Immediately prior to his hospitalization Better Earth had experienced a sharp decline in its stock price and trading activity became almost nonexistent. The primary reason for this was concern expressed in the media over a new untested waste management system implemented by the company. Mr. Gomi had been unwilling to submit the procedure to testing before implementation but he reluctantly agreed to limited tests after the system was operational. No problems have been identified by the tests to date. The other members of management called a meeting to determine what they should do. Sean Casey the marketing manager suggested that the company purchase a large number of shares of treasury stock. In that way investors might notice that activity had picked up and might decide to buy some more shares. This plan would use up most of the company's available cash so that there will be no money available for a cash dividend. Better Earth has paid cash dividends every quarter for over ten years. Required: 1. Is Mr. Casey's suggestion ethical? Explain. 2. Is it ethical to discontinue the cash dividend? Explain.

The retained earnings statement

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

On December 31 2017 Stanford Inc. has 1500 shares of 6% $100 par value cumulative preferred stock and 90000 shares of $10 par value common stock outstanding. On December 31 2017 the directors declare a $30000 cash dividend. The entry to record the declaration of the dividend would include:

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

Which of the following statements about a cash dividend is incorrect?

Dabney Inc. has 5000 shares of 5% $100 par value noncumulative preferred stock and 40000 shares of $1 par value common stock outstanding at December 31 2017. There were no dividends declared in 2016. The board of directors declares and pays a $60000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?

Most companies are required to report earnings per share on the face of the income statement.

On January 1 Layline Corporation had 160000 shares of $10 par value common stock outstanding. On June 17 the company declared a 15% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a

On January 1 Layline Corporation had 160000 shares of $10 par value common stock outstanding. On June 17 the company declared a 15% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The entry to record the transaction of June 17 would include a

When a corporation has both preferred and common stock outstanding earnings per share is computed by dividing net income

VAS Corporation had net income of $500000 and paid dividends of $800000 to common stockholders and $20000 to preferred stockholders in 2017. VAS Corporation's common stockholders' equity at the beginning and end of 2017 was $1740000 and $2260000 respectively. There are 200000 weighted-average shares of common stock outstanding. VAS Corporation's return on common stockholders' equity was

Which of the following statements about retained earnings restrictions is incorrect?

On November 1 2017 Nixon Corporation's stockholders' equity section is as follows: Common stock, \ 10 par value \ 600,000 Paid-in capital in excess of par 180,000 Retained earnings 200,000 Total stockholders' equity \ 980,000 On November 1 Nixon declares and distributes an 18% stock dividend when the market value of the stock is $14 per share. Instructions Indicate the balances in the stockholders' equity accounts after the stock dividend has been distributed.

Earnings per share indicates the net income earned by each share of outstanding common stock.

The accounting is essentially the same under IFRS and GAAP for

Income tax expense usually appears as a separate section on a corporation income statement.

Retained earnings is increased by each of the following except

The board of directors must assign a per share value to a stock dividend declared that is