Choose the correct answer:
51. Farmer Corporation owns
4,000,000 shares of stock in Baha Corporation. On December 31, 2007, Farmer
distributed these shares of stock as a dividend to its stockholders. This is an
example of a
a. property dividend.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.
Ans: a. property dividend
52. A dividend which is a
return to stockholders of a portion of their original investments is a
a. liquidating dividend.
b. property dividend.
c. liability dividend.
d. participating dividend.
Ans: a. liquidating dividend
53. A mining company declared a
liquidating dividend. The journal entry to record the declaration must include
a debit to
a. Retained Earnings.
b. a paid-in capital account.
c. Accumulated Depletion.
d. Accumulated Depreciation.
Ans: b. a paid-in capital account.
54. If management wishes to
“capitalize” part of the earnings, it may issue a
a. cash dividend.
b. stock dividend.
c. property dividend.
d. liquidating dividend.
Ans: b. stock dividend.
55. Which dividends do not
reduce stockholders’ equity?
a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends
Ans: b. Stock dividends
56. The declaration and
issuance of a stock dividend larger than 25% of the shares previously
outstanding
a. increases common stock
outstanding and increases total stockholders’ equity.
b. decreases retained earnings
but does not change total stockholders’ equity.
c. may increase or decrease
paid-in capital in excess of par but does not change total stockholders’ equity.
d. increases retained earnings
and increases total stockholders’ equity.
Ans: b. decreases retained earnings
but does not change total stockholders’ equity.
57. Pryor Corporation issued a
100% stock dividend of its common stock which had a par value of $10 before and
after the dividend. At what amount should retained earnings be capitalized for
the additional shares issued?
a. There should be no
capitalization of retained earnings.
b. Par value
c. Market value on the
declaration date
d. Market value on the payment
date
Ans: b. Par value
58. The issuer of a 5% common
stock dividend to common stockholders preferably should transfer from retained
earnings to contributed capital an amount equal to the
a. market value of the shares
issued.
b. book value of the shares
issued.
c. minimum legal requirements.
d. par or stated value of the
shares issued.
Ans: a. market value of the shares issued (or) fair value of the shares issued.
59. At the date of declaration
of a small common stock dividend, the entry should not include
a. a credit to Common Stock
Dividend Payable.
b. a credit to Paid-in Capital
in Excess of Par.
c. a debit to Retained
Earnings.
d. All of these are
acceptable.
Ans: a. a credit to Common Stock
Dividend Payable.
60. The balance in Common Stock
Dividend Distributable should be reported as a(n)
a. deduction from common stock
issued.
b. addition to capital stock.
c. current liability.
d. contra current asset.
Ans: b. addition to capital stock.