25) TLR Productions issued 40 shares of $20 par value stock to its accountant in full payment for
her $900 fee for assisting in setting up the new company. The entry to record the issuance of the
stock would include a:
A) debit to Common Stock for $800.
B) credit to Common Stock for $900.
C) credit to Common Stock for $800.
D) debit to Paid-in Capital in Excess of Par–Common for $100.
26) Ironworks, Inc. issued 200 shares of $12 par common stock in exchange for a piece of
equipment with a current market value of $3,000. Which of the following is NOT part of the
journal entry for this transaction?
A) Debiting equipment for $3,000
B) Crediting Common Stock for $3,000
C) Crediting paid-in capital in excess of par-common for $600
D) Crediting Common Stock for $2,400
27) NW Stone Supply issued 50 shares of $15 par common stock in exchange for a piece of
equipment with a current market value of $1,000. Which of the following is NOT part of the
journal entry for this transaction?
A) Debiting equipment for $750
B) Crediting Common Stock for $750
C) Debiting equipment for $1,000
D) Crediting paid-in capital in excess of par-common for $250
28) Evergreen Building, Inc. issued 2,000 shares of $18 par common stock in exchange for a
truck with a current market value of $40,000. Which of the following is NOT part of the journal
entry for this transaction?
A) Debiting equipment for $40,000
B) Crediting Common Stock for $40,000
C) Crediting Common Stock for $36,000
D) Crediting paid-in capital in excess of par-common for $4,000
10.4 Questions
1) Paying dividends causes a decrease in total assets, but an increase in total Stockholders’
Equity.
2) Corporations declare cash dividends from Retained Earnings.
3) The portion of Stockholders’ Equity that can be used for dividends is referred to as legal
capital.
4) Preferred stock may have its dividend rate listed as a percentage of par value per share or as a
flat stated amount.
5) If a corporation has both common and preferred stock, the preferred stockholders will receive
their dividends first, if the money is available.
6) Cumulative common stock will pay dividends in arrears.
7) If a company has 2,500 shares authorized and 1,500 have been issued, the annual dividends on
$20 par 5% preferred stock is $1,500.
8) If a company has 3,000 shares authorized and 2,000 have been issued, the annual dividends on
$18 par 3% preferred stock is $1,620.
9) A company has 25,000 shares of $12 par, 8% preferred stock. The 8% refers to the stock’s:
A) market rate.
B) dividend rate.
C) paid-in capital rate.
D) interest rate.
10) Which of the following is NOT a date associated with cash dividends?
A) Date of issuance
B) Date of declaration
C) Date of payment
D) Date of record
11) Which of the following dates do NOT require a journal entry?
A) Date of payment
B) Date of record
C) Date of declaration
D) All dividend dates require a journal entry.
12) The date of declaration creates a(n) ________ for the corporation.
A) asset
B) liability
C) expense
D) revenue
13) The date of record is the date that:
A) the board of directors announces a dividend will be paid.
B) the dividends will be transferred to the shareholders.
C) the shareholders purchased the stock.
D) will determine which shareholders receive the dividends.
14) On the date of declaration:
A) debit Dividends and credit Retained Earnings.
B) debit Dividends Payable and credit Cash.
C) debit Retained Earnings and credit Cash.
D) debit Retained Earnings and credit Dividends Payable.
15) On the date of record:
A) debit Dividends and credit Retained Earnings.
B) debit Dividends Payable and credit Cash.
C) no entry is required.
D) debit Retained Earnings and credit Dividends Payable.
16) On the date of payment:
A) debit Dividends and credit Retained Earnings.
B) debit Dividends Payable and credit Cash.
C) debit Cash and credit Dividends Payable.
D) debit Retained Earnings and credit Dividends Payable.
17) A type of stock that pays dividends in arrears is:
A) cumulative common stock.
B) cumulative preferred stock.
C) non-cumulative common stock.
D) non-cumulative preferred stock.
18) To determine dividends on par-value preferred stock, calculate the:
A) number of outstanding shares times dividend rate.
B) dividend rate times par value.
C) par value times number of outstanding shares times dividend rate.
D) number of outstanding shares divided by the dividend rate.
19) What are the annual dividends on $20 par preferred 5% stock, if 2,000 shares are authorized
and 700 shares have been issued?
A) $700
B) $200
C) $70
D) $20
20) The liability “dividend payable” is recognized on the date of:
A) stock issue.
B) payment.
C) record.
D) declaration.
21) Payment of a cash dividend causes a(n):
A) increase in liabilities.
B) decrease in an assets.
C) increase in Stockholders’ Equity.
D) increase in revenue.
22) What are dividends in arrears?
A) The portion of Stockholders’ Equity that cannot be used to pay dividends
B) A distribution of a corporation’s own stock to its shareholders
C) The portion of an annual dividend on cumulative preferred stock which has not been paid
D) An increase in the number of outstanding shares of stock
23) Vintage Boutique’s outstanding stock is 100 shares of $100 par, 11% cumulative preferred
stock and 2,000 shares of $12 par common stock. Vintage Boutique paid $1,600 in cash
dividends during the year. No dividends are in arrears. Common stockholders received:
A) $0.
B) $500.
C) $2,500.
D) $1,100.
24) Cypress Corporation’s outstanding stock is 75 shares of $60-par, 8% non-cumulative
preferred stock and 2,000 shares of $10-par common stock. Cypress paid $2,400 in dividends
during the year. Common stockholders received:
A) $2,400.
B) $2,040.
C) $360.
D) $0.
25) Stonework Company’s outstanding stock is 100 shares of $100, 6% cumulative preferred
stock and 2,000 shares of $10 par common stock. Stonework paid $2,000 in cash dividends
including one-year dividends in arrears to preferred stockholders. Common stockholders
received:
A) $1,818.
B) $800.
C) $600.
D) $0.
26) Sonny’s Sails has declared a $40,000 cash dividend to shareholders. The company has 5,000
shares of $20-par, 6% preferred stock and 10,000 shares of $15-par common stock. The
preferred stock is non-cumulative. How much will be distributed to the preferred and common
stockholders on the date of payment?
A) $40,000 preferred, $0 common
B) $0 preferred, $40,000 common
C) $34,000 preferred, $6,000 common
D) $6,000 preferred, $34,000 common
27) Ironworks, Inc. has declared a $20,000 cash dividend to shareholders. The company has
5,000 shares of $15-par, 10% preferred stock and 10,000 shares of $20-par common stock. The
preferred stock is non-cumulative. How much will be distributed to the preferred and common
stockholders on the date of payment?
A) $0 preferred, $20,000 common
B) $7,500 preferred, $12,500 common
C) $20,000 preferred, $0 common
D) $12,500 preferred, $7,500 common
28) Evergreen Building, Inc. has declared a $40,000 cash dividend to shareholders. The company
has 5,000 shares of $20-par, 6% preferred stock and 10,000 shares of $15-par common stock.
The preferred stock is cumulative. How much will be distributed to the preferred and common
stockholders on the date of payment if the preferred stock is $12,000 in arrears?
A) $40,000 preferred, $0 common
B) $6,000 preferred, $34,000 common
C) $18,000 preferred, $22,000 common
D) $20,000 preferred, $20,000 common
29) Stars, Inc. has declared a $20,000 cash dividend to shareholders. The company has 5,000
shares of $15-par, 10% preferred stock and 10,000 shares of $20-par common stock. The
preferred stock is cumulative. How much will be distributed to the preferred and common
stockholders on the date of payment if the preferred stock is $8,000 in arrears?
A) $15,500 preferred, $4,500 common
B) $8,000 preferred, $12,000 common
C) $7,500 preferred, $12,500 common
D) $20,000 preferred, $0 common
10.5 Questions
1) A stock dividend affects total Stockholders’ Equity.
2) A stock dividend increases the stockholder’s percent of stock held.
3) A stock dividend may be given to reduce the market price of the stock.
4) A corporation may declare stock dividends when there is not enough cash to pay a cash
dividend.
5) A stock dividend will increase total assets.
6) If a company has 18,000 shares outstanding before a 3-for-1 stock split, then after the split
they will have 6,000 shares outstanding.
7) If a company has 33,000 shares outstanding before a 5-for-3 stock split, then after the split
they will have 55,000 shares outstanding.
8) The declaration of a stock dividend:
A) creates a liability.
B) creates an asset.
C) creates a revenue.
D) does not create a liability.
9) A stock dividend has what effect on the following accounts?
A) Debit Retained Earnings, debit Common Stock; credit Paid-in Capital in Excess of Par.
B) Debit Common Stock; credit Retained Earnings; credit Paid-in Capital in Excess of Par.
C) Debit Retained Earnings; credit Common Stock, credit Paid-in Capital in Excess of Par.
D) Credit Retained Earnings, credit Common Stock and credit Paid-in Capital in Excess of Par.
10) A 2-for-1 stock split will:
A) double the number of shares of stock and double the par value per share.
B) double the number of shares of stock and halve the par value per share.
C) halve the number of shares of stock and halve the par value per share.
D) halve the number of shares of stock and double the par value per share.
11) A stock split is recorded as a(n):
A) regular journal entry.
B) memorandum entry.
C) adjusting entry.
D) closing entry.
12) Elite Electrical has 350,000 shares of $3-par common stock outstanding. They have declared
a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount
that will be debited to Retained Earnings on the date of declaration is:
A) $52,500.
B) $131,250.
C) $78,750.
D) $183,750.
13) Elite Electrical has 350,000 shares of $3-par common stock outstanding. They have declared
a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount
that will be credited to common stock on the date of declaration is:
A) $52,500.
B) $131,250.
C) $78,750.
D) $183,750.
14) Mike’s Motors has 200,000 shares of $5-par common stock outstanding. They have declared
a 10% stock dividend. The current market price of the common stock is $11/share. The amount
that will be debited to Retained Earnings on the date of declaration is:
A) $100,000.
B) $320,000.
C) $220,000.
D) $120,000.
15) Mike’s Motors has 200,000 shares of $5-par common stock outstanding. They have declared
a 10% stock dividend. The current market price of the common stock is $11/share. The amount
that will be credited to Common Stock on the date of declaration is:
A) $100,000.
B) $320,000.
C) $220,000.
D) $120,000.
16) Caesar Corporation has 250,000 shares of $7-par common stock outstanding. They have
declared a 7% stock dividend. The current market price of the common stock is $11/share. The
amount that will be credited to Paid-in Capital in Excess of Par Common Stock on the date of
declaration is:
A) $122,500.
B) $192,500.
C) $70,000.
D) $315,000.
17) S&C, Inc. has 400,000 shares of $10-par common stock outstanding. They have declared a
5% stock dividend. The current market price of the common stock is $18/share. The amount that
will be credited to Paid-in Capital in Excess of Par Common Stock on the date of declaration is:
A) $560,000.
B) $160,000.
C) $200,000.
D) $360,000.