Corporations: Dividends, Retained Earnings, and Income Reporting
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Accounting › Corporations: Dividends, Retained Earnings, and Income Reporting
Which of the following is true regarding retained earnings?
They are increased with net income (i.e. credit)
They are decreased by net income (i.e. debit)
They include preferred stock
They increase when dividends are declared
Explanation
Net income increases retained earnings; therefore, net income is considered to be credit. Dividends, once declared, decrease retained earnings. Last, preferred stock is not accounted in retained earnings.
For the current year, The Echo Company possessed the following income:
In the Echo Company's current year taxable income, how much should be included for dividends received?
Explanation
This problem is asking us to determine the amount of dividends to be included in the Echo Company's taxable income for the current year. The dividends were received from 20%-owned taxable domestic corporations; therefore, they are eligible for an 80% dividends received deduction. We can compute this value using the following formula:
For the current year, The Echo Company possessed the following income:
In the Echo Company's current year taxable income, how much should be included for dividends received?
Explanation
This problem is asking us to determine the amount of dividends to be included in the Echo Company's taxable income for the current year. The dividends were received from 20%-owned taxable domestic corporations; therefore, they are eligible for an 80% dividends received deduction. We can compute this value using the following formula:
A company provides 
April's income statement will show revenue of
June's income statement will show revenue of
April's income statement will show a receipt of 
June's income statement will show an increase in accounts receivable of
Explanation
Revenue is recorded in the period that services are earned or goods are delivered,not in the period that cash is received; therefore, the company will record an increase in revenue of 
A company provides
April's income statement will show revenue of
June's income statement will show revenue of
April's income statement will show a receipt of
June's income statement will show an increase in accounts receivable of
Explanation
Revenue is recorded in the period that services are earned or goods are delivered,not in the period that cash is received; therefore, the company will record an increase in revenue of
Which of the following is true regarding retained earnings?
They are increased with net income (i.e. credit)
They are decreased by net income (i.e. debit)
They include preferred stock
They increase when dividends are declared
Explanation
Net income increases retained earnings; therefore, net income is considered to be credit. Dividends, once declared, decrease retained earnings. Last, preferred stock is not accounted in retained earnings.