1. All of the following are reasons why very few companies pay dividends equal to retained earnings except:
A.Agreements with specific creditors that require a company to retain a portion of the earnings.
B.The desire to retain assets to finance growth.
C.The desire to build up a cushion against possible losses.
D.The desire to increase dividend payments in good years.

2. Distributions to shareholders are generally permitted as long as the:
A.Corporation is solvent and distributions do not exceed the fair value of net assets.
B.Distributions are not in excess of the book value of net assets.
C.Corporation is not insolvent.
D.Corporation has funds available to pay the dividend.

3. Which of the following dividends do not reduce total shareholders' equity?
A.Liquidating dividends.
B.Scrip dividends.
C.Stock dividends.
D.All of the options reduce total shareholders' equity.

4. When a property dividend is declared, retained earnings is reduced by the:
A.Book value of the property.
B.Cost of the property.
C.Fair value of the property.
D.Carrying value of the property.

5. All of the following dividends decrease retained earnings except:
A.Liquidating dividends.
B.Property dividends.
C.Scrip dividends.
D.Stock dividends.

6. In a stock dividend, the amount transferred from retained earnings is based on the:
A.Stated value of the shares.
B.Par value of the shares.
C.Fair value of the shares.
D.Book value of the shares.

7. Common share dividends distributable are reported in the balance sheet as:
A.An addition to contributed surplus.
B.An addition to common shares.
C.A current liability.
D.A deduction from retained earnings.

8. A stock split results in an increase in the number of shares outstanding with no change in:
A.Retained earnings amount.
B.Book value per share.
C.Market value per share.
D.All of the above.

9. Preferred shareholders generally receive the largest amount of cash dividends if the preferred share is:
A.Noncumulative and nonparticipating.
B.Noncumulative and fully participating.
C.Cumulative and nonparticipating.
D.Cumulative and fully participating.

10. Preferred shareholders receive more than the specified dividend rate when the share is:
D.Cumulative or participating.

11. Which of the following statements about an appropriation of retained earnings is not correct?
A.It is just a reclassification of retained earnings for a specific purpose.
B.An appropriation sets aside cash for a specific purpose.
C.It discloses that management does not intend to distribute dividends up to the amount of the appropriation.
D.Appropriating retained earnings requires approval by the board of directors.

12. Retained earnings can be appropriated for all the following reasons except:
A.Protection of working capital.
B.Contractual restrictions.
C.Existence of possible or expected loss.
D.All of the options are reasons.

13. A restriction of retained earnings is best disclosed in the following way:
A.A separate financial statement schedule.
B.Note disclosure.
C.Parenthetical notations.
D.A contra account.

14. All of the following are categories that appear as part of shareholders' equity except:
A.Contributed surplus.
B.Common shares
C.Retained earnings.
D.Scrip dividends payable

15. The rate of return on common shareholders' equity is calculated by dividing:
A.Net income by average common shareholders' equity.
B.Net income by ending common shareholders' equity.
C.Net income less preferred dividends by average common shareholders' equity.
D.Net income less preferred dividends by ending common shareholders' equity.

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