Page 546 - Accounting Principles (A Business Perspective)

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➢ What is the effect of each of the following on the total stockholders' equity of a corporation: (a)
declaration of a cash dividend, (b) payment of a cash dividend already declared, (c) declaration of a
stock dividend, and (d) issuance of a stock dividend already declared?

➢ The following dates are associated with a cash dividend of USD 80,000: July 15, July 31, and August
15. Identify each of the three dates, and give the journal entry required on each date, if any.
➢ How should a declared but unpaid cash dividend be shown on the balance sheet? How should a
declared but unissued stock dividend be shown?

➢ On May 8, the board of directors of Park Corporation declared a dividend, payable on June 5, to
stockholders of record on May 17. On May 10, James sold his capital stock in Park Corporation

directly to Benton for USD 20,000, endorsing his stock certificate and giving it to Benton. Benton
placed the stock certificate in her safe. On May 30, Benton sent the certificate to the transfer agent of
Park Corporation for transfer. Who received the dividend? Why?
➢ What are the possible reasons for a corporation to declare a stock dividend?
➢ Why is a dividend consisting of the distribution of additional shares of the common stock of the
declaring corporation not considered income to the recipient stockholders?
➢ What is the difference between a small stock dividend and a large stock dividend?

➢ What are liquidating dividends?
➢ What is the purpose of a retained earnings appropriation?
➢ What is a statement of stockholders' equity?
➢ Describe a discontinued operation.
➢ What are extraordinary items? Where and how are they reported?
➢ Give an example of a change in accounting principle. How are the effects of changes in accounting
principle reported?

➢ What are prior period adjustments? Where and how are they reported?
➢ Why are stockholders and potential investors interested in the amount of a corporation's EPS? What
does the EPS amount reveal that total earnings do not.
Exercises
Exercise A The 2009 December 31, trial balance of Yamey Corporation had the following account balances:
Common stock (no-par value; 200,000 shares authorized, issued, and
outstanding; stated value of $20 per share) $4,000,000
Notes payable (12% due 2010 May 1) 500,000
Retained earnings, unappropriated 2,500,000
Dividends payable in cash (declared December 15, on preferred stock) 12,000
Appropriation per loan agreement 480,000
Preferred stock (6%, par value $200; 2,000 shares authorized, issued,
and outstanding) 400,000
Paid-In capital in excess of stated value – Common 300,000
Paid-In Capital in Excess of Par Value – Preferred 40,000
Present in proper form the stockholders' equity section of the balance sheet.
Exercise B Fogg Company has issued all of its authorized 5,000 shares of USD 400 par value common stock.
On 2009 February 1, the board of directors declared a dividend of USD 12 per share payable on 2009 March 15, to

stockholders of record on 2009 March 1. Give the necessary journal entries.

Accounting Principles: A Business Perspective 547 A Global Text