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Chapter 13: Q32E (page 716)

Determining the effects of cash dividends, stock dividends, and stock splits

Complete the following chart by inserting a check mark for each statement that is true.

Cash dividend Stock dividend Stock split

Decreases retained earnings

Has no effect on a liability

Increases paid-in capital by thesame amount that it decreasesretained earnings

Decreases both total assets andtotal stockholders’ equity

Has no effect on totalstockholders’ equity

Short Answer

Expert verified

CashandStock dividenddecreases retained earnings.

Cashdividend,Stock dividend, and Stock Splithas no effect on a liability.

Stock dividendincreases paid-in capital by the same amount that it decreases retained earnings.

Cash dividenddecreases both total assets and total stockholders’ equity.

Stock dividend and Stock dividendhas no effect on total stockholders’ equity.

Step by step solution

01

Basic Introduction

Cash dividends are an availability of a part of the profit or surplus as a dividend for the stockholders of the corporation. Stock dividends are a release of stock as dividend for the stockholders of the corporation. Stock split is a distribution of issues shares in the ratio as decided by corporation.

02

The effects of cash dividends, stock dividends, and stock splits

Cash dividend

Stock dividend

Stock split

Decreases retained earnings

✓

✓

Has no effect on a liability

✓

✓

✓

Increases paid-in capital by the same amount that it decreases retained earnings

✓

Decreases both total assets and total stockholders’ equity

✓

Has no effect on total stockholders’ equity

✓

✓

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Most popular questions from this chapter

Preparing an income statement

The following information was taken from the records of Arizona Motorsports, Inc. at November 30, 2018:

Learning Objectives 3, 4

1. Nov. 8 Treasury Stock \(36,000

Learning Objective 5

Net Income \)37,840

Selling Expenses

Administrative Expenses

Income from Discontinued Operations

Cost of Goods Sold

Treasury Stock—Common (1,500 shares)

Net Sales Revenue

\( 95,000

150,000

2,400

470,000

19,500

801,400

Common Stock, \)11 Par Value, 13,500

shares authorized and issued \( 148,500

Preferred Stock, \)2 No-Par Value, 2,000

shares issued 60,000

Income Tax Expense: Continuing

Operations 50,000

Income Tax Expense: Income from

Discontinued Operations 960

Prepare a multi-step income statement for Arizona Motorsports for the fiscal year ended November 30, 2018. Include earnings per share

What is the effect on the accounting equation when cash dividends are declared?

What is the effect on the accounting equation when cash dividends are paid?

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

d. Stockholders’ liability is limited.

Organizing a corporation and issuing stock

Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of \(350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

3. If they decide to issue \)5 par common stock and anticipate an initial market price of \(20 per share, how many shares will they need to issue to raise \)2,750,000?

List three characteristics of a corporation.
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