Strayer ACC/206 Accounting Principles II Week 6 Quiz TRUE - FALSE STATEMENTS 1. Dividends may be declared and paid in cash or stock. True False 2. Cash dividends are not a liability of the corporation until they are declared by the board of directors. True False 3. The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified. True False 4. A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease. True False 5. A 3 for 1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock. True False 6. Retained earnings represents the amount of cash available for dividends. True False 7. Net income of a corporation should be closed to retained earnings and net losses should be closed to paid - in capital accounts. True False 8. A debit balance in the Retained Earnings account is identified as a deficit. True False 9. A correction in income of a prior period involves either a debit or credit to the Retained Earnings account. True False 10. Prior period adjustments to income are reported in the current year's income statement. True False 11. Retained earnings that are restricted are unavailable for dividends. True False 12. Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends. True False 13. A retained earnings statement shows the same information as a corporation income statement. True False 14. A detailed stockholders' equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record. True False 15. Common Stock Dividends Distributable is shown within the Paid - in Capital subdivision of the stockholders' equity section of the balance sheet. True False 16. Return on common stockholders’ equity is computed by dividing net income by ending stockholders’ equity. True False 17. Many companies prepare a stockholders’ equity statement instead of presenting a detailed stockholders’ equity section in the balance sheet. True False 18. A major difference among corporations, proprietorships, and partnerships is that a corporation's income statement reports income tax expense. True False 19. A corporation incurs income tax expense only if it pays dividends to stockholders. True False 20. Income tax expense usually appears as a separate section on a corporation income statement. True False 21. Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding. True False 22. Preferred dividends paid are added back to net income in calculating earnings per share for common stockholders. True False 23. Earnings per share indicates the net income earned by each share of outstanding common stock. True False 24. Earnings per share is reported for both preferred and common stock. True False 25. Most companies are required to report earnings per share on the face of the income statement. True False Additional True - False Questions 26. A dividend based on paid - in capital is termed a liquidating dividend. True False 27. Common Stock Dividends Distributable is reported as additional paid - in capital in the stockholders' equity section. True False 28. A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings. True False 29. Income tax expense and the related liability for income taxes payable are recorded when taxes are paid. True False 30. Earnings per share is reported only for common stock. True False MULTIPLECHOICE QUESTIONS 31. Each of the following decreases retained earnings except a a. cash dividend. b. liquidating dividend. c. stock dividend. d. All of these decrease retained earnings. 32. Each of the following decreases total stockholders' equity except a a. cash dividend. b. liquidating dividend. c. stock dividend. d. All of these decrease total stockholders' equity. 33. Which one of the following is not necessary in order for a corporation to pay a cash dividend? a. Adequate cash b. Approval of stockholders c. Declaration of dividends by the board of directors d. Retained earnings 34. If a corporation declares a dividend based upon paid - in capital, it is known as a a. scrip dividend. b. property dividend. c. paid dividend. d. liquidating dividend. 35. The date on which a cash dividend becomes a binding legal obligation is on the a. declaration date.