Accounting Test 5

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On which of the following dates do dividends become a liability of a corporation?

Dividends become a liability of a corporation on the declaration date

Which of the following rates is the rate at which most corporations pay federal income tax?

35%

Which of the following occurs when a previously declared dividend is paid?

Liabilities decrease

Which of the following amounts must be determined to account for the income tax?

Income tax expense and income tax payable must be determined.

A corporation has 10,000 shares of 10%, $50 par, noncumulative preferred stock outstanding
and 20,000 shares of no-par common stock outstanding. At the end of the current year, the
corporation declares a dividend of $120,000.

The dividend per share is $5.00 to preferred shares and $3.50 to common shares

Which of the following is the book value of preferred stock?

The book value of preferred stock is equal to liquidation value plus any dividends in arrears.

A corporation has $250,000 in retained earnings. The board of directors appropriates $50,000
for the purchase of a new building. Which of the following would be included in the entry to
record this appropriation?

Retained earnings would be debited for $50,000

A corporation has $40,000 of retained earnings at the beginning of the period. The company has
net income of $5,000 and pays dividends of $30,000 during the period. What is the balance in
retained earnings at the end of the period?

$15,000

Which does not require a formal journal entry?

Stock split

Which of the following items in NOT found on a statement of retained earnings?

Earnings per share

Dividends given by a corporation are generally:

cash dividends.

Which of the following shows the relationship between net income available to common
shareholders and average common equity?

The rate of return on common stockholders' equity

Which of the following corporate characteristics is an advantage of the corporate form of
business?

A) No mutual agency
B) The potential to raise large amounts of capital
C) Limited liability

When companies "pass the dividend", the dividends are said to be:

in arrears.

Which of the following is the formula for computing return on equity?

(Net income - preferred dividends) / Average common stockholders' equity

Which of the following is TRUE of a restriction or appropriation of retained earnings?

A restriction or appropriation of retained earnings does not affect total retained earnings.

Which of the following is the amount computed by the following formula?
(Net income - preferred dividends) / Average common stockholders' equity

the rate of return on common stockholders'
equity.

Which of the following is TRUE of dividends in arrears?

C) Dividends in arrears are passed dividends on cumulative preferred stock.

How would a loss from a tornado be treated on an income statement?

A loss from a tornado would be treated as an extraordinary loss if the company is located
in an area where tornados are rare.

Which of the following occurs when income before income tax from the income statement is
less than taxable income from the income tax return filed with the IRS?

Either Deferred tax payable is debited or Prepaid income tax is debited

Which of the following characteristics of a corporation limits a stockholder's losses to the
amount of his or her investment in the stock of the corporation?

Limited liability

Which of the following is the most common cause of a difference in income tax expense and
income tax payable?

the use of accelerated depreciation for the tax return and
straight-line depreciation for the income statement.

Which of the following is TRUE of retained earnings?

Retained earnings represent capital that the corporation has earned through profitable
operations.

Which of the following characteristics of a corporation exists because a contract signed by one
owner is not binding for the whole company?

No mutual agency

Which of the following statements concerning the statement of retained earnings is NOT
correct?

The statement of retained earnings contains information concerning new shares of stock
issued during the period.

Which of the following is the amount computed by the following formula?
Income before tax from the income statement x Income tax rate

The amount computed from the formula is income tax expense.

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