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Homework answers / question archive / P11-6 For each of the following numbered items, you are to select the lettered item(s) that indicate(s) its effect(s) on the corporation's statements
P11-6 For each of the following numbered items, you are to select the lettered item(s) that indicate(s) its effect(s) on the corporation's statements. If more than one effect is applicable to particular item, be sure to indicate all applicable letters. (Assume that the state statutes do not permit declaration of nonliquidating dividends except from earnings.)
Item Effect
1. Declaration of a cash dividend due in 1 month. a. Reduces working capital
on noncumulative preferred stock. b. Increases working capital
2. Declaration and payment of an c. Reduces current ratio
ordinary stock dividend. d. Increases current ratio
3. Receipt of a cash dividend, not previously e. Reduces the dollar amount of total
recorded, on stock of another corporation capital stock
4. Passing of a dividend on cumulative f. Increases the dollar amount of
preferred stocks. total capital stock
5. Receipt of preferred shares as a dividend on g. Reduces total retained earnings
stock held as a temporary investment. This was h. Increase total retained earnings
not a regularly recurring dividend. i. Reduces equity per share of
6. Payment of dividend mentioned in 1. common stock
7. Issue of new common shares in a 5-for-1 j. Reduces equity of each common
stock split. stockholder
please see the attached file for the full solution.
1. Declaration of a cash dividend due in 1 month on noncumulative preferred stock.
Journal entries
Preferred dividends xxx
Dividends payable xxx
Retained earnings xxx
Preferred dividends xxx
Effect: e and g because the dividends to be paid will reduce total retained earnings and the dollar amount of total capital stock.
a and c because the dividends payable is regarded as current liabilities.
2. Declaration and payment of an ordinary stock dividend.
Journal entries
Common dividends xxx
Cash xxx
Retained earnings xxx
Common dividends xxx
Effect: e and g because the dividends to be paid will reduce total retained earnings and the dollar amount of total capital stock.
a and c because the cash, which is current asset, is reduced.
3. Receipt of a cash dividend, not previously recorded, on stock of another corporation
Effect: b and d because cash, which is current asset, is increased.
f and h because the cash received will be closed to these accounts.
4. Passing of a dividend on cumulative preferred stocks.
Effect: a and c because the dividends payable is regarded as current liabilities.
5. Receipt of preferred shares as a dividend on stock held as a temporary investment. This was not a regularly recurring dividend.
Effect: f and h because the preferred shares received as a dividend will be closed to these accounts.
6. Payment of dividend mentioned in 1.
Effect: a and c because the cash, which is current asset, is reduced.
7. Issue of new common shares in a 5-for-1 stock split.
