AC Corporations: Dividends, Retained Earnings, and Income Reporting 56. ABC, Inc. has 1,000 shares of 5%, $100

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AC Corporations: Dividends, Retained Earnings, and Income Reporting

56. ABC, Inc. has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2010. What is the
annual dividend on the preferred stock?
a. $50 per share
b. $5,000 in total
c. $500 in total
d. $.50 per share

57. Agler, Inc. has 10,000 shares of 7%, $100 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2010. If the
board of directors declares a $60,000 dividend, the
a. preferred shareholders will receive 1/10th of what the common shareholders will
receive.
b. preferred shareholders will receive the entire $60,000.
c. $60,000 will be held as restricted retained earnings and paid out at some future date.
d. preferred shareholders will receive $30,000 and the common shareholders will receive
$30,000.

58. Manner, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and
20,000 shares of $1 par value common stock outstanding at December 31, 2010. There
were no dividends declared in 2009. The board of directors declares and pays a $45,000
dividend in 2010. What is the amount of dividends received by the common stockholders
in 2010?
a. $0
b. $25,000
c. $45,000
d. $20,000

59. Lopez, Inc. has 2,000 shares of 4%, $50 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2009, and December
31, 2010. The board of directors declared and paid a $3,000 dividend in 2009. In 2010,
$15,000 of dividends are declared and paid. What are the dividends received by the
preferred and common shareholders in 2010?
Preferred Common
a. $9,000 $6,000
b. $7,500 $7,500
c. $5,000 $10,000
d. $4,000 $11,000

72. Outstanding stock of the Colt Corporation included 20,000 shares of $5 par common stock
and 5,000 shares of 5%, $10 par noncumulative preferred stock. In 2009, Colt declared
and paid dividends of $2,000. In 2010, Colt declared and paid dividends of $6,000. How
much of the 2010 dividend was distributed to preferred shareholders?
a. $3,000
b. $3,500
c. $2,500
d. None of the above
73. Outstanding stock of the Abel Corporation included 20,000 shares of $5 par common
stock and 10,000 shares of 5%, $10 par noncumulative preferred stock. In 2009, Abel
declared and paid dividends of $4,000. In 2010, Abel declared and paid dividends of
$12,000. How much of the 2010 dividend was distributed to preferred shareholders?
a. $7,000
b. $4,000
c. $5,000
d. None of the above

76. Sun Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2010. What is the
annual dividend on the preferred stock?
a. $50 per share
b. $25,000 in total
c. $5,000 in total
d. $0.50 per share

77. Allstate, Inc., has 10,000 shares of 6%, $100 par value, noncumulative preferred stock
and 100,000 shares of $1 par value common stock outstanding at December 31, 2010. If
the board of directors declares a $200,000 dividend, the
a. preferred stockholders will receive 1/10th of what the common stockholders will
receive.
b. preferred stockholders will receive the entire $200,000.
c. $60,000 will be held as restricted retained earnings and paid out at some future date.
d. preferred stockholders will receive $60,000 and the common stockholders will receive
$140,000.

78. Archer, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and
40,000 shares of $1 par value common stock outstanding at December 31, 2010. There
were no dividends declared in 2009. The board of directors declares and pays a $120,000
dividend in 2010. What is the amount of dividends received by the common stockholders
in 2010?
a. $0
b. $50,000
c. $20,000
d. $70,000

79. Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2010, and
December 31, 2009. The board of directors declared and paid a $5,000 dividend in 2009.
In 2010, $24,000 of dividends are declared and paid. What are the dividends received by
the preferred stockholders in 2010?
a. $17,000
b. $12,000
c. $7,000
d. $6,000

80. Anders, Inc., has 5,000 shares of 5%, $100 par value, cumulative preferred stock and
20,000 shares of $1 par value common stock outstanding at December 31, 2011. There
were no dividends declared in 2009. The board of directors declares and pays a $45,000
dividend in 2010 and in 2011. What is the amount of dividends received by the common
stockholders in 2011?
a. $15,000
b. $25,000
c. $45,000
d. $0

14 - 16 Test Bank for Accounting Principles, Ninth Edition
81. Cuther Inc., has 1,000 shares of 6%, $50 par value, cumulative preferred stock and
50,000 shares of $1 par value common stock outstanding at December 31, 2009, and
December 31, 2010. The board of directors declared and paid a $2,000 dividend in 2009.
In 2010, $12,000 of dividends are declared and paid. What are the dividends received by
the common stockholders in 2010?
a. $8,000
b. $6,000
c. $4,000
d. $3,000

82. On January 1, Swanson Corporation had 60,000 shares of $10 par value common stock
outstanding. On March 17, the company declared a 15% stock dividend to stockholders
of record on March 20. Market value of the stock was $13 on March 17. The entry to
record the transaction of March 17 would include a
a. credit to Retained Earnings for $27,000.
b. credit to Cash for $117,000.
c. credit to Common Stock Dividends Distributable for $90,000.
d. debit to Common Stock Dividends Distributable for $90,000.

83. On January 1, Swanson Corporation had 60,000 shares of $10 par value common stock
outstanding. On March 17, the company declared a 15% stock dividend to stockholders
of record on March 20. Market value of the stock was $13 on March 17. The stock was
distributed on March 30. The entry to record the transaction of March 30 would include a
a. credit to Cash for $90,000.
b. debit to Common Stock Dividends Distributable for $90,000.
c. credit to Paid-in Capital in Excess of Par Value for $27,000.
d. debit to Retained Earnings for $27,000.

84. On January 1, Sandford Corporation had 80,000 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
a. debit to Retained Earnings for $180,000.
b. credit to Cash for $180,000.
c. credit to Common Stock Dividends Distributable for $180,000.
d. credit to Common Stock Dividends Distributable for $60,000.

Corporations: Dividends, Retained Earnings, and Income Reporting 14 - 17
85. On January 1, Sanford Corporation had 80,000 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
a. credit to Common Stock for $120,000.
b. debit to Common Stock Dividends Distributable for $180,000.
c. credit to Paid-in Capital in Excess of Par Value for $60,000.
d. debit to Retained Earnings for $60,000.

86. Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 7%, $100
par value cumulative preferred stock outstanding. It is one year in arrears on its preferred
stock. How much cash will Colson distribute to the common stockholders?
a. $76,000.
b. $84,000.
c. $118,000.
d. None.

87. Ludwick Inc. has retained earnings of $800,000 and total stockholders' equity of
$2,000,000. It has 200,000 shares of $5 par value common stock outstanding, which is
currently selling for $30 per share. If Ludwick declares a 10% stock dividend on its
common stock:
a. net income will decrease by $100,000.
b. retained earnings will decrease by $100,000 and total stockholders' equity will
increase by $100,000.
c. retained earnings will decrease by $600,000 and total stockholders' equity will
increase by $600,000.
d. retained earnings will decrease by $600,000 and total paid-in capital will increase by
$600,000.

88. On December 31, 2010, Springer, Inc. has 3,000 shares of 6% $100 par value cumulative
preferred stock and 45,000 shares of $10 par value common stock outstanding. On
December 31, 2010, the directors declare a $12,000 cash dividend. The entry to record
the declaration of the dividend would include:
a. a credit of $6,000 to Retained Earnings.
b. a note in the financial statements that dividends of $6 per share are in arrears on
preferred stock for 2010.
c. a debit of $12,000 to Common Stock.
d. a credit of $12,000 to Dividends Payable.

89. Franklin, Inc. declares a 10% common stock dividend when it has 30,000 shares of $10
par value common stock outstanding. If the market value of $24 per share is used, the
amounts debited to Retained Earnings and credited to Paid-in Capital in Excess of Par
Value are:
Paid-in Capital in
Retained Earnings Excess of Par Value
a. $30,000 $0
b. $72,000 $42,000
c. $72,000 $30,000
d. $30,000 $42,000

90. Shannon Manufacturing declared a 10% stock dividend when it had 250,000 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
a. Retained Earnings for $75,000.
b. Paid-in Capital in Excess of Par for $225,000.
c. Common Stock for $75,000.
d. Common Stock Dividends Distributable for $300,000.

91. The following selected amounts are available for Sanders Company.
Retained earnings (beginning) $800
Net loss 100
Cash dividends declared 100
Stock dividends declared 50
What is its ending retained earnings balance?
a. $650
b. $700
c. $550
d. $600

92. Turquoise and Topaz Sisters had retained earnings of $15,000 on the balance sheet but
disclosed in the footnotes that $2,000 of retained earnings was restricted for plant
expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set
aside for the plant expansion. How much of retained earnings is available for dividends?
a. $12,000
b. $13,000
c. $15,000
d. $10,000

Corporations: Dividends, Retained Earnings, and Income Reporting 14 - 19
93. Irwin, Inc. had 300,000 shares of common stock outstanding before a stock split occurred,
and 900,000 shares outstanding after the stock split. The stock split was
a. 3-for-9.
b. 9-for-1.
c. 1-for-9.
d. 3-for-1.

94. Restricting retained earnings for the cost of treasury stock purchased is a
a. contractual restriction.
b. legal restriction.
c. stock restriction.
d. voluntary restriction.

95. 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.

116. Wheeler Company reports the following amounts for 2010.
Net income $150,000
Average stockholders' equity 1,000,000
Preferred dividends 42,000
Par value preferred stock 200,000
The 2010 rate of return on common stockholders' equity is
a. 18.8%.
b. 13.5%.
c. 15.0%.
d. 10.8%.

117. During 2010 Silas Inc. had sales revenue $564,000, gross profit $264,000, operating
expenses $99,000, cash dividends $45,000, other expenses and losses $30,000. Its
corporate tax rate is 30%. What was Silas's income tax expense for the year?
a. $27,000
b. $79,200
c. $169,200
d. $40,500

118. Jansen Corporation had 300,000 shares of common stock outstanding during the year.
Jansen declared and paid cash dividends of $200,000 on the common stock and
$160,000 on the preferred stock. Net income for the year was $880,000. What is Jansen's
earnings per share?
a. $1.73
b. $2.27
c. $2.40
d. $2.93
Ans: c, SO: 5, Bloom: AP, Difficulty: Hard, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: FSA

119. The income statement for Roland Inc. shows income before income taxes $700,000,
income tax expenses $210,000, and net income $490,000. If Roland declared $150,000 of
cash dividends on preferred stock and has 100,000 shares of common stock outstanding
throughout the year, earnings per share is:
a. $5.50
b. $3.40
c. $1.50
d. $0.60
122. West, Inc. has a net income of $500,000 for 2010, and there are 200,000 weightedaverage shares of common stock outstanding. Dividends declared and paid during the
year amounted to $80,000 on the preferred stock and $120,000 on the common stock.
The earnings per share for 2010 is
a. $2.50.
b. $1.90.
c. $2.10.
d. $1.50.

126. Dillon Corporation splits its common stock 2 for 1, when the market value is $40 per
share. Prior to the split, Dillon had 50,000 shares of $10 par value common stock issued
and outstanding. After the split, the par value of the stock
a. remains the same.
b. is reduced to $2 per share.
c. is reduced to $5 per share.
d. is reduced to $20 per share.

129. Jennifer Company reports the following amounts for 2010:
Net income $135,000
Average stockholders' equity 500,000
Preferred dividends 35,000
Par value preferred stock 100,000
The 2010 rate of return on common stockholders' equity is
a. 25.0%.
b. 22.5%.
c. 27.0%.
d. 33.8%.

131. Norman Corporation had 250,000 shares of common stock outstanding during the year.
Norman declared and paid cash dividends of $200,000 on the common stock and
$160,000 on the preferred stock. Net income for the year was $880,000. What is
Norman