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Intermediate Accounting 2 > Retained Earnings > Flashcards

Retained Earnings Flashcards

1
Q

Retained earnings represent

a. Earned capital
b. Cash
c. Assets
d. Net Assets

A

a. Earned capital

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2
Q

Retained earnings represent

a. Undistributed net income
b. Undistributed net assets
c. Extra contributed capital
d. Undistributed cash

A

a. Undistributed net income

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3
Q

The total retained earnings balance is not affected by

a. Net income
b. A prior period error
c. Dividends paid
d. Restrictions

A

d. Restrictions

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4
Q

When a property dividend is declared, the divided payable is measured based on FV of property on

a. Record date
b. Distribution date
c. Declaration date, reporting date and distribution date
d. Reporting date

A

c. Declaration date, reporting date and distribution date

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5
Q

The declaration and issuance of a share dividend

a. Has no effect on assets, liabilities and total shareholders’ equity
b. Decreases total shareholders’ equity
c. Decreases assets and total shareholders’ equity
d. Does not change retained earnings

A

a. Has no effect on assets, liabilities and total shareholders’ equity

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6
Q

Nonshare dividend is recognized as liability on the

a. Date of declaration
b. Date of record
c. Date of payment
d. Date of issuing check

A

a. Date of declaration

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7
Q

When shareholders may receive cash in lieu of share dividend, the amount charged to retained earnings is equal to

a. Optional cash dividend
b. FV of the shares
c. Par value of the shares
d. Book value of the shares

A

a. Optional cash dividend

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8
Q

Treasury shares may be reissued as dividends, in which case what amount shall be charged to retained earnings?

a. Cost of treasury shares
b. Par value of treasury shares
c. FV of treasury shares on the date of declaration
d. FV of treasury shares on the date of issuance

A

b. Par value of treasury shares

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9
Q

If the share dividend is less than 20%, how much of the retained earnings shall be capitalized?

a. Par value of the shares
b. FV of the shares on the date of declaration
c. FV of the shares on the date of record
d. FV of the dates on the date of issuance

A

b. FV of the shares on the date of declaration

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10
Q

At what amount should retained earnings be reduced if the share dividend is 20% or more?

a. Zero
b. Par value
c. Market value at the declaration
d. Market value at the date of issuance

A

b. Par value

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11
Q

An entity declared a cash dividend on a certain date, payable on another date. Retained earnings would

a. Increase on the date of declaration
b. Not be affected on the date of declaration
c. Not be affected on the date of payment
d. Decrease on the date of payment

A

c. Not be affected on the date of payment

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12
Q

The actual total amount of a cash dividend to be paid is determined on the date of

a. Record
b. Declaration
c. Declaration or record, whichever is earlier
d. Payment

A

a. Record

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13
Q

A dividend which is a return to shareholders of a portion of their original investment is

a. Liquidating dividend
b. Patronage dividend
c. Liability dividend
d. Participating dividend

A

a. Liquidating dividend

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14
Q

Total shareholders’ equity is not affected by the

a. Issuance of a share dividend
b. Conversion of bonds payable into share capital
c. Sale of treasury shares at more than cost
d. Declaration of a cash dividend

A

a. Issuance of a share dividend

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15
Q

How would the declaration and subsequent issuance of a 10% share dividend affect share capital and share premium respectively, when the fair value of the shares exceeds par value?

a. No effect and No effect
b. No effect and Increase
c. Increase and No effect
d. Increase and Increase

A

d. Increase and Increase

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16
Q

An entity declared a dividend, a portion of which was liquidating. How would this declaration affect contributed capital and retained earnings, respectively?

a. Decrease and No effect
b. Decrease and Decrease
c. No effect and Decrease
d. No effect and No effect

A

b. Decrease and Decrease

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17
Q

How would the declaration of a liquidating dividend affect contributed capital and retained earnings, respectively?

a. No effect and Decrease
b. Decrease and No effect
c. No effect and No effect
d. Decrease and Decrease

A

b. Decrease and no effect

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18
Q

The issuer shall directly charge retained earnings for the FV of the shares issued in

a. Two for one share split
b. Share options
c. Ten percent share dividend
d. Share appreciation right

A

c. Ten percent share dividend

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19
Q

The issuer shall directly charge retained earnings for the par value of shares issued in

a. 1 for 5 shares dividend
b. 1 to 8 share dividend
c. 4 for 1 share split
d. 2 for 1 share split

A

a. 1 for 5 shares dividend

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20
Q

A transfer from retained earnings to share capital equal to the FV of the shares issued is ordinarily a characteristics of

a. Either a share dividend or share split
b. Neither a share dividend nor share split
c. Share split but not a share dividend
d. Share dividend but not a share split

A

d. Share dividend but not a share split

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21
Q

An entry is not made on the

a. Date of declaration
b. Date of record
c. Date of payment
d. An entry is made on all of these dates

A

b. Date of record

22
Q

Cash dividends are paid based on the number of shares

a. Authorized
b. Issued
c. Outstanding
d. Outstanding less the number of treasury shares

A

c. Outstanding

23
Q

Undistributed share dividends shall be reported as

a. A current liability
b. An addition to share capital outstanding
c. A reduction in total shareholders’ equity
d. A note to the financial statements

A

b. An addition to share capital oustanding

24
Q

Which of the following would not affect retained earnings?

a. Conversion of preference share into ordinary share
b. Share split
c. Treasury share transaction
d. Share dividend

A

b. Share split

25
Q

How would retained earnings be affected by the declaration of share dividend and share split, respectively?

a. Decrease and Decrease
b. No effect and Decrease
c. No effect and No effect
d. Decrease and No effect

A

d. Decrease and No effect

26
Q

Which statement about property dividend is not true?

a. A property dividend is usually in the form of securities of other entities
b. A property dividend is also called a dividend in kind
c. The accounting for a property dividend is based on the CA of the noncash asset
d. All these statements are true

A

c. The accounting for a property dividend is based on the CA of the noncash asset

27
Q

Which is a capitalization of retained earnings?

a. Cash dividend
b. Share dividend
c. Property dividend
d. Liquidating dividend

A

b. Share dividend

28
Q

Liquidating dividends

a. Are prohibited under IFRS
b. Require a credit to share capital
c. Reduce amounts paid in by shareholders
d. All of the choices are correct

A

c. Reduce amounts paid in by shareholders

29
Q

A share dividend requires a formal journal entry because the share dividend

a. Increases the book value of a share
b. Increases shareholders’ equity
c. Is a liability on the date of declaration
d. Represents a transfer from retained earnings to share capital

A

d. Represents a transfer from retained earnings to share capital

30
Q

When a share dividend is declared

a. Total shareholders’ equity does not change
b. Total shareholders’ equity decreases
c. The current ratio increases
d. The amount of working capital decreases

A

a. Total shareholders’ equity does not change

31
Q

An entity shall measure a liability to distributive noncash asset as dividend to the owners at

a. CA of the asset distributed
b. FV of the asset distributed
c. Either the CA or FV of the asset
d. Neither the CA nor FV

A

b. FV of the asset distributed

32
Q

An entity shall review and adjust the CA of the dividend payable at the end of each reporting period and at the date of settlement with any changes in the CA of the dividend payable recognized

a. In equity as adjustment to the amount of distribution
b. In profit or loss
c. As adjustment of share premium
d. As component of other comprehensive income

A

a. In equity as adjustment to the amount of distribution

33
Q

When an entity settles the property dividend payable, it shall recognize the difference between the CA of the asset distributed and the CA of the dividend payable as

a. Gain or Loss on distribution of property dividend
b. Other comprehensive income
c. Equity
d. Retained earnings

A

a. Gain or Loss on distribution of property dividend

34
Q

An entity shall measure a noncurrent asset classified as held for distribution to owners at

a. CA
b. FV less cost to distribute
c. Lower between CA and FV less cost to distribute
d. FC

A

c. Lower between CA and FV less cost to distribute

35
Q

If the FV less cost to distribute is lower than CA of the asset at the end of reporting period, the difference is accounted for as

a. Impairment Loss
b Gain on property dividend
c. Adjustment of retained earnings
d. Adjustment of dividends payable

A

a. Impairment Loss

36
Q

A retained earnings appropriation is used to

a. Absorb a fire loss when an entity is self-insured
b. Provide for probable and measurable contingent loss
c. Smooth periodic income
d. Restrict earnings available for dividends

A

d. Restrict earnings available for dividends

37
Q

An appropriation of retained earnings for future plant expansion will result in

a. The establishment of a fund to finance plant expansion
b. The setting aside of cash for future plant expansion
c. A decrease in cash with an equal increase in fund
d. The disclosure that management does not intend to distribute dividends equal to the appropriation

A

d. The disclosure that management does not intend to distribute dividends equal to the appropriation

38
Q

A restriction of retained earnings is required by

a. Purchase of property, plant and equipment
b. Purchase of treasury shares
c. Payment of last maturing series of a serial bond issue
d. Funding of past service cost

A

b. Purchase of treasury shares

39
Q

Retained earnings appropriated account is created for the purpose of

a. Earmarking cash to be used for particular purposes
b. Insuring the payment of dividends
c. Protecting the working capital position
d. Preventing losses from contingencies

A

c. Protecting the working capital position

40
Q

Which is incorrect concerning appropriations of retained earnings?

a. Appropriations of retained earnings do not change the total amount of shareholders’ equity
b. Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant expansion
c. Appropriations of retained earnings can be made as a result of a contractual requirements
d. Appropriations of retained earnings can be made at the discretion of the board of directors

A

b. Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant expansion

41
Q

For which purpose should an appropriation for possible loss contingencies be established?

a. To match applicable costs with current revenue
b. To reduce fluctuations in net income
c. To charge operations in periods of rising prices
d. To inform shareholders that a portion of retained earnings is not available for dividends

A

d. To inform shareholders that a portion of retained earnings is not available for dividends

42
Q

Which statement is not true about appropriation?

a. Appropriations do not reduce total retained earnings
b. The only proper way to eliminate an appropriation is to revert to the unappropriated retained earnings
c. Retained earnings must be appropriated equal to the par value of the treasury shares
d. An appropriation does not mean that asset is segregated for a specific purpose

A

c. Retained earnings must be appropriated equal to the par value of the treasury shares

43
Q

Which is true regarding payment of dividends?

a. Dividends may be paid from legal capital
b. Retained earnings are available for dividends unless restricted by contract or by statute
c. Legal capital is available for any type of dividend
d. Capital from donated asset is available for dividends

A

for dividends unless restricted by contract or by statute

44
Q

Which is not a legal restriction to income distribution?

a. The amount distributed must be in compliance with law
b. The amount distributed can never exceed the net income for the current year
c. Income distribution must be approved by board of directors
d. Dividends must be in agreement with preferences

A

b. The amount distributed can never exceed the net income for the current year

45
Q

The use of equity reserves under IFRS

a. Is strictly voluntary on the part of the management
b. Is based on whether a reserve is part of distributable or nondistributable equity
c. Is primarily for the benefit of shareholders
d. Results in the elimination of retained earnings

A

b. Is based on whether a reserve is part of distributable or nondistributable equity

46
Q

The primary purpose of quasi-reorganization is to give an entity the opportunity to

a. Obtain relief from creditors
b. Revalue understated assets to FV
c. Eliminate a deficit in retained earnings
d. Form a new corporation

A

c. Eliminate a deficit in retained earnings

47
Q

When an entity goes through a quasi-reorganization the CA are stated at

a. Original cost
b. Replacement cost
c. FV
d. Original CA

A

c. FV

48
Q

Immediately after a quasi-reorganization, the retained earnings account

a. Has a zero balance
b. Remains the same
c. Frozen and dated
d. Has a debit balance

A

a. Has a zero balance

49
Q

The accounting for a quasi-reorganization usually includes

a. Writeup of assets and writedown of retained earnings
b. Writedown of both assets and retained earnings
c. Writedown of assets and elimination of a deficit
d. Writeup of assets and elimination of a deficit

A

c. Writedown of assets and elimination of a deficit

50
Q

An entity undertakes a quasi-reorganization. Certain assets will be written down to FV. Liabilities will remain the same. How would the quasi-reorganization affect share capital and retained earnings, respectively?

a. Increase and Decrease
b. Decrease and No effect
c. Decrease and Increase
d. No effect and Increase

A

c. Decrease and Increase

Intermediate Accounting 2 (3 decks)

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