CHAPTER 8 Review

Question 1

Property dividends should be recorded at the fair value of the assets to be distributed.

(TRUE OR FALSE)

Answer 1

True

Question 2

A share capital dividend decreases retained earnings but it increases contributed capital.

(TRUE OR FALSE)

Answer 2

True

Question 3

A share capital dividend does not change total shareholders’ equity.

(TRUE OR FALSE)

Answer 3

True

Question 4

A debit balance in the Retained Earnings account is called a deficit.

(TRUE OR FALSE)

Answer 4

True

Question 5

A share capital dividend that has been declared but not yet distributed should be reported as a current liability.

(TRUE OR FALSE)

Answer 5

False

Question 6

An appropriation of retained earnings reduces the total amount of retained earnings.

(TRUE OR FALSE)

Answer 6

False

Question 7

The liquidation value of a preference share is always equal to its par-value.

(TRUE OR FALSE)

Answer 7

False

Question 8

The accounting cycle of a corporation is very much different from the accounting cycle of a partnership or a sole proprietorship.

(TRUE OR FALSE)

Answer 8

False

Question 9

Book value per share is the amount earned for every capital share owned by a shareholder.

(TRUE OR FALSE)

Answer 9

False

Question 10

Dividends may be declared even if a corporation has a deficit.

(TRUE OR FALSE)

Answer 10

False

Question 11

A cumulative preference share capital is entitled to payment of dividends in arrears.

(TRUE OR FALSE)

Answer 11

True

Question 12

Unappropriated retained earings represents amount of cash available for dividend distribution.

(TRUE OR FALSE)

Answer 12

False

Question 13

Appropriation of retained earnings is necessary when the corporation reacquires its own share capital.

(TRUE OR FALSE)

Answer 13

True

Question 14

The balance of the Income Summary account is transferred to the Retained Earnings account.

(TRUE OR FALSE)

Answer 14

True

Question 15

The normal balance of Retained Earnings account is credit. Therefore, it can never have a debit balance.

(TRUE OR FALSE)

Answer 15

False

Question 16

A deficit (or debit balance) in Retained Earnings means that Retained Earnings appears in the asset section of the statement of financial position.

(TRUE OR FALSE)

Answer 16

False

Question 17

On a corporation’s statement of financial position, Ordinary Share Capital Subscribed will appear in the shareholders’ equity section rather than in the asset section.

(TRUE OR FALSE)

Answer 17

True

Question 18

Earnings per share is computed for both preference and ordinary shares.

(TRUE OR FALSE)

Answer 18

False

Question 19

“Dividends in arrears” is a term that applies to cumulative preference shares.

(TRUE OR FALSE)

Answer 19

True

Question 20

Book value of share capital is a measurement of the amount of income earned for each share of stock.

(TRUE OR FALSE)

Answer 20

False

Question 21

Capital arising from investment by shareholders.

Answer 21

Contributed Capital

Question 22

Also known as legal capital.

Answer 22

Share Capital

Question 23

Contributions by shareholders in excess of the par or stated value of the share capital.

Answer 23

Share Premium

Question 24

Dividends representing return of shareholders’ investment.

Answer 24

Liquidating Dividend

Question 25

A deferred cash dividend.

Answer 25

Scrip Dividends

Question 26

Corporate earnings distributed to shareholders in the form of cash, non- cash assets, or the corporation's own shares.

Answer 26

Dividends

Question 27

Retained Earnings set aside for a specific purpose.

Answer 27

Appropriated Retained Earnings

Question 28

Dividends distributable in the form of non-cash assets.

Answer 28

Property Dividend

Question 29

A share capital dividend representing less than 20% of the outstanding stock of the corporation.

Answer 29

Small Share Capital Dividend

Question 30

Unpaid dividends of prior years.

Answer 30

Dividends in Arrears

Question 31

A debit balance in the Retained Earnings account.

Answer 31

Deficit

Question 32

The peso equity in corporate capital of each share capital.

Answer 32

Book Value per share

Question 33

Retained earnings available for distribution as dividends to shareholders.

Answer 33

Unappropriated Retained Earnings

Question 34

Capital arising from profitable operations of the corporation.

Answer 34

Retained Earnings

Question 35

Preference share capital that participates in the excess dividends after paying both preference and ordinary shares their regular dividends.

Answer 35

Participating Preference Shares Capital

Question 36

The excess of fair value over par value of share capital in a small stock dividend.

Question 37

The amount recorded as reduction in Retained Earnings on a property dividend declaration.

Answer 37

Carrying Value

Question 38

The account used for the declared bit mot yer distributed stock dividend.

Answer 38

Stock Dividend Distributable

Question 39

The type of dividend that does not affect total assets and total shareholders' equity.

Answer 39

Stock Dividend

Question 40

Amount earned by shareholders during a given period for each ordinary share held.

Answer 40

Earning per share

Question 41

The Retained Earnings account: a. has a credit balance if earnings have been greater than losses and dividends, and is reported as part of shareholders' equity on the statement of financial position. b. has a debit balance if losses have exceeded earnings, and is reported as part of assets on the statement of financial position. c. represents the amount of cash available for payment of dividends if there has been profitable operations. d. is a special fund for paying shareholders' dividends on the basis of income.

Answer 41

a. has a credit balance if earnings have been greater than losses and dividends, and is reported as part of shareholders' equity on the statement of financial position.

Question 42

All of the following statements pertain to dividends. Which of them is (are) true? a. Shareholders vote each year to declare and set the amount of the dividends to be paid. b. Dividends Payable is a current liability in the statement of financial position of the corporation. c. A 10% dividend on preference share capital means that each shareholder receives a cash dividend equal to 10% of the market value of the stock. d. All of these statements are true.

Answer 42

b. Dividends Payable is a current liability in the statement of financial position of the corporation.

Question 43

All of the following statements regarding dividends in arrears is false? a. Dividends in arrears are not a liability to a corporation until they are declared. b. Total dividends in arrears is one year dividend requirement on in arrears. cumulative preference share capital multiplied by the number of years c. Dividends in arrears must be reported in the footnotes to the financial statements. d. Dividends in arrears may arise on both preference and ordinary share capital in any year the dividends are not paid.

Answer 43

d. Dividends in arrears may arise on both preference and ordinary share capital in any year the dividends are not paid.

Question 44

Dividends in arrears on preference shares are reported in the financial statements as (an) a. liability b. expense c. reduction from Retained Earnings d. footnote to financial statements

Answer 44

d. footnote to financial statements

Question 45

Donated Capital is reported as part of a. share capital b. Additional Paid-in Capital c. Appropriated retained earnings d. Unappropriated retained earnings

Answer 45

b. Additional Paid-in Capital

Question 46

When a small share capital dividend is declared, Retained Earings is debited for the a. par value of the share capital b. fair market value of the share capital on the date of record c. fair market value of the share capital on the date of declaration d. fair market value of the share capital on the date of distribution

Answer 46

c. fair market value of the share capital on the date of declaration

Question 47

Cash dividends declared but not paid as of the statement of financial position date are reported as a. current liability b. deduction from Cash c. addition to Share Capital d. addition to Additional Paid-in Capital

Answer 47

a. current liability

Question 48

The total shareholders' equity after the declaration of stock dividend a. is the same as the total shareholders' equity before the declaration. b. is greater than the total shareholders' equity before the declaration. c. is less than the total shareholders' equity before the declaration. d. may be more than or less than the total shareholders' equity before the declaration depending on whether the stock dividend declared is small or large

Answer 48

a. is the same as the total shareholders' equity before the declaration.

Question 49

An appropriation of Retained Earnings a. leaves total Retained Earnings unchanged b. means that cash has been set aside for a specific purpose c. reduces the amount of Retained Earnings available for dividends d. both a and c

Answer 49

d. both a and c

Question 50

The peso equity in corporate capital for each share capital owned by a shareholder is known as a. earnings per share b. book value per share c. none of these d. dividends per share

Answer 50

b. book value per share

Question 51

A corporation declared dividends on December 1 payable on January 15 to shareholders of record of December 30. The balance of Retained Earnings a. decreases on December 30 b. decreases on January 15 c. is not affected on December 30 d. is not affected on December 1

Answer 51

c. is not affected on December 30

Question 52

A corporation has experienced losses greater than profits in the past three years since incorporation. Which of the following statements is true? a. Retained Earnings has a credit balance at the end of the third year. b. Retained Earnings has a debit balance and is reported as an asset on the statement of financial position. c. Retained Earnings has a debit balance and it appears as a reduction in the shareholders' equity on the statement of financial position. d. Retained Earnings has a credit balance at the end of the third year and the corporation may choose how to report a deficit.

Answer 52

c. Retained Earnings has a debit balance and it appears as a reduction in the shareholders' equity on the statement of financial position.

Question 53

Dividends representing a return of invested capital is known as a. stock dividend b. scrip dividend c. property dividend d. liquidating dividend

Answer 53

d. liquidating dividend

Question 54

A debit balance in the Retained Earnings accounts is reported as a (an) a. asset b. contra liability c. liability d. contra equity

Answer 54

d. contra equity

Question 55

When a corporation pays dividends, the three relevant dates for dividends occur in this order: a. date of record, date of declaration, date of payment b. date of payment, date of declaration, date of record c. date of declaration, date of payment, date of record d. date of declaration, date of record, date of payment

Answer 55

d. date of declaration, date of record, date of payment

Question 56

Which of the following will reduce Retained Earnings? a. Declaration of a stock dividend b. Payment of a cash dividend c. Profit for the period d. None of these

Answer 56

a. Declaration of a stock dividend

Question 57

When a corporation declares a cash dividend, the entry include a a. debit to net income b. credit to APIC c. debit to Retained Earnings d. credit to Cash

Answer 57

c. debit to Retained Earnings

Question 58

The date when the board of directors announces the intention to pay dividends is known as a. dividend date b. declaration date c. record date d. payment date

Answer 58

b. declaration date

Question 59

Which of the following is not reported in the statement of changes in shareholders’ equity? a. Profit for the year b. Undistributed dividends declared during the year c. Interest expense d. Ordinary shares issued at more than par value

Answer 59

c. Interest expense

Question 60

The type of dividend that does not affect total assets and total shareholders' equity is a. share capital dividend b. property dividend c. cash dividend d. scrip dividend

Answer 60

a. share capital dividend

Question 61

Which of the following is (are) attributed to market value of share capital? a. Share capital dividend b. 3/30 c. Date of declaration value d. All of the above

Answer 61

d. All of the above

Question 62

When the outstanding preference share capital is multiplied by the participation rate, the result is a. full participation preference b. maximum allowed participation c. non-participating preference shares d. cumulative preference

Answer 62

b. maximum allowed participation

Question 63

Earnings per share is computed on a. ordinary shares only b. preference shares only c. both ordinary and preferencé shares d. neither ordinary nor preference shares

Answer 63

a. ordinary shares only

Question 64

Which of the following is not correct relative to an appropriation of Retainea Earnings? a. Retained earnings set aside for a special or specific purpose. b. Undistributed funds for dividends declared during the year. c. Reduction in the amount available to shareholders as dividends d. Total retained earnings remains unchanged.

Answer 64

b. Undistributed funds for dividends declared during the year.