Page 557 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

Answers to self-test
True-false
False. The paid-in capital of a corporation only includes capital contributed by stockholders or others. Thus, it

does not include retained earnings.
False. The purchase of treasury stock reduces total stockholders' equity.
False. Dividends are distributions of earnings in the past and are not expenses.
True. A stock dividend permanently capitalizes a portion of retained earnings by decreasing retained earnings
and increasing paid-in capital by an equal amount.
False. The purpose of a retained earnings appropriation is to disclose that a portion of retained earnings is not
available for cash dividends. Thus, such an appropriation does not reduce total stockholders' equity.

False. Such damage occurs too frequently to be considered nonrecurring.
Multiple-choice
d. Appropriation per Loan Agreement is part of retained earnings.
c. When treasury stock is reacquired, the stock is recorded at cost in a debit-balance stockholders' equity
account, Treasury Stock.
a. The excess of the reissue price over the cost of treasury stock is recorded in the Paid-In Capital—Treasury
Stock Transactions account.
a. Treasury stock is customarily shown as a deduction from total stockholders' equity.
b. The date of record determines who is to receive the dividends.

c. The total amount of dividends is computed as follows:
Total Outstanding shares at declaration:
(12,000 – 2,000) shares 10,0000
Dividend per share X USD 2
Total dividend amount USD 20,000

b. Prior period adjustments are shown as adjustments to the opening balance of retained earnings on the
statement of retained earnings.

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