Financial Accounting Quiz: Cash And Stock Dividends
20 questions · exam conditions
0:00
Cash And Stock DividendsQuestion 1 of 20

When a company declares a cash dividend that exceeds the balance in its retained earnings, the portion of the dividend in excess of retained earnings is known as a liquidating dividend. Apex Corp. has a retained earnings balance of $500,000 and declares a total cash dividend of $700,000. What is the effect of the dividend declaration on Apex's accounts?

A debit to Retained Earnings for $700,000.
A debit to Retained Earnings for $500,000 and a debit to Additional Paid-in Capital for $200,000.
A debit to Retained Earnings for $500,000 and a debit to an expense account for $200,000.
A debit to Dividends Payable for $700,000 and a credit to Cash for $700,000.
← Back to quizzes

Financial Accounting Quiz

Financial Accounting Quiz: Cash And Stock Dividends

Practice Cash And Stock Dividends in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Cash And Stock Dividends, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

When a company declares a cash dividend that exceeds the balance in its retained earnings, the portion of the dividend in excess of retained earnings is known as a liquidating dividend. Apex Corp. has a retained earnings balance of $500,000 and declares a total cash dividend of $700,000. What is the effect of the dividend declaration on Apex's accounts?

  1. A debit to Retained Earnings for $700,000.
  2. A debit to Retained Earnings for $500,000 and a debit to Additional Paid-in Capital for $200,000. (correct answer)
  3. A debit to Retained Earnings for $500,000 and a debit to an expense account for $200,000.
  4. A debit to Dividends Payable for $700,000 and a credit to Cash for $700,000.
Explanation: A liquidating dividend represents a return of capital to stockholders, not a distribution of earnings. When a dividend exceeds the balance in retained earnings, the excess is treated as a reduction of paid-in capital. The entry on the date of declaration would be a debit to Retained Earnings for its entire balance (500,000),adebittoAdditionalPaid−inCapitalfortheexcess(500,000), a debit to Additional Paid-in Capital for the excess (200,000), and a credit to Dividends Payable for the total dividend amount ($700,000).

Question 2

On June 30, due to a temporary cash shortage, Bristol Corp. declared a dividend to be paid in the form of short-term notes, often called a scrip dividend. The declaration was for a $2 per share dividend on its 100,000 outstanding common shares. The notes are payable in six months and bear interest at an annual rate of 8%. Which entry should Bristol make on June 30?

  1. Retained Earnings (Dr.) $200,000 Notes Payable (Cr.) $200,000 (correct answer)
  2. Retained Earnings (Dr.) $208,000 Notes Payable (Cr.) $208,000
  3. Retained Earnings (Dr.) $200,000 Interest Expense (Dr.) $8,000 Notes Payable (Cr.) $208,000
  4. No entry is recorded until the notes are paid.
Explanation: On the date of declaration for a scrip dividend, the company recognizes the principal amount of the dividend as a liability. The total dividend is 100,000 shares * $2/share = $200,000. This reduces Retained Earnings and creates a Note Payable for the same amount. The interest on the note accrues over the life of the note and is recorded as interest expense in the period it is incurred, not on the date the dividend is declared.

Question 3

At the beginning of the year, a company's equity section showed Common Stock ($10 par, 50,000 shares outstanding) of $500,000 and Retained Earnings of 800,000.Duringtheyear,thecompanydeclaredanddistributedastockdividend.Atyear−end,theequitysectionshowedCommonStock(800,000. During the year, the company declared and distributed a stock dividend. At year-end, the equity section showed Common Stock (10 par, 55,000 shares outstanding) of $550,000 and Retained Earnings of $680,000. No other equity transactions occurred. Based on this information, what was the market price per share of the stock on the date the dividend was declared?

  1. $24.00 (correct answer)
  2. $10.00
  3. $34.00
  4. $12.00
Explanation: This is a reverse calculation. First, determine the size of the stock dividend. The number of new shares is 55,000 - 50,000 = 5,000 shares. This is a 10% stock dividend (5,000 / 50,000), which is a small stock dividend. Small stock dividends are recorded at market value. The total reduction in Retained Earnings was $800,000 - $680,000 = $120,000. To find the market price per share, divide the total reduction in Retained Earnings by the number of shares issued in the dividend: $120,000 / 5,000 shares = $24.00 per share.

Question 4

Garnet Inc. declared and distributed a property dividend from its investment in marketable equity securities. The securities had a carrying value of $500,000 and a fair market value of $420,000 on the date of distribution. What is the net impact of this transaction on Garnet's total stockholders' equity?

  1. A decrease of $420,000.
  2. A decrease of $80,000.
  3. A decrease of $500,000. (correct answer)
  4. No net change to total stockholders' equity.
Explanation: Similar to a property dividend with a gain, this transaction requires two steps. First, the asset must be adjusted to fair value, resulting in a loss: $420,000 (fair value) - 500,000(carryingvalue)=(500,000 (carrying value) = (80,000) loss. This loss reduces net income and thus reduces retained earnings. Second, the dividend is declared at the fair value of the asset, which is a debit to retained earnings of $420,000. The total decrease in retained earnings is the sum of these two effects: $80,000 (loss) + $420,000 (dividend) = $500,000. Therefore, the net impact on total stockholders' equity is a decrease of $500,000.

Question 5

A company has 5,000 shares of 8%, $100 par value, non-cumulative preferred stock and 20,000 shares of common stock outstanding. The company paid no dividends in Year 1. In Year 2, the company declares a total cash dividend of $100,000. How much will be distributed to the common shareholders?

  1. $20,000
  2. $60,000 (correct answer)
  3. $100,000
  4. $0
Explanation: For non-cumulative preferred stock, any dividends that are not declared in a given year are lost (not carried forward as dividends in arrears). Therefore, the dividend from Year 1 is irrelevant. In Year 2, the preferred shareholders are entitled to their current year's dividend before common shareholders receive anything. The annual preferred dividend is 5,000 shares * $100 par * 8% = $40,000. The remaining amount of the total dividend goes to common shareholders: $100,000 (total) - $40,000 (to preferred) = $60,000.

Question 6

On February 1, a company's board of directors declared a 2-for-1 stock split, effected in the form of a 100% stock dividend. The company has 1,000,000 shares of $2 par value common stock outstanding. The market price was $50 per share. How would this transaction affect the company's Additional Paid-in Capital (APIC) and Retained Earnings accounts?

  1. APIC increases by $48,000,000; Retained Earnings decreases by $50,000,000.
  2. APIC is unchanged; Retained Earnings decreases by $2,000,000. (correct answer)
  3. APIC increases by $2,000,000; Retained Earnings decreases by $2,000,000.
  4. APIC and Retained Earnings are both unchanged.
Explanation: When a stock split is 'effected in the form of a stock dividend,' it should be accounted for as a large stock dividend if the new shares issued are 20-25% or more of the outstanding shares. A 100% dividend qualifies. Large stock dividends are capitalized at par value. The number of new shares is 1,000,000 * 100% = 1,000,000. The amount to capitalize from Retained Earnings is 1,000,000 shares * $2 par value = $2,000,000. This amount is transferred from Retained Earnings to the Common Stock account. Additional Paid-in Capital is not affected.

Question 7

On January 1, Year 2, Omni Corp.'s stockholders' equity section showed: Common stock, $5 par value, 200,000 shares issued and outstanding - $1,000,000; Additional paid-in capital - $4,000,000; Retained earnings - $2,500,000. On March 1, Year 2, Omni declared a 15% stock dividend when the stock was trading at $20 per share. On October 1, Year 2, Omni declared a cash dividend of $1.00 per share. What is the balance in retained earnings on December 31, Year 2, assuming no other transactions affected the account?

  1. $1,770,000
  2. $1,850,000
  3. $1,670,000 (correct answer)
  4. $2,150,000
Explanation: This is a multi-step problem. First, account for the small stock dividend (15% < 25%). The number of new shares is 200,000 * 15% = 30,000. For a small stock dividend, retained earnings is reduced by the market value of the shares: 30,000 shares * $20/share = $600,000. Second, account for the cash dividend. The number of outstanding shares is now 200,000 + 30,000 = 230,000. The cash dividend is 230,000 shares * $1.00/share = $230,000. The ending retained earnings is $2,500,000 (beginning) - $600,000 (stock dividend) - $230,000 (cash dividend) = $1,670,000.

Question 8

A company is considering two alternatives to alter its capital structure: a 2-for-1 stock split and a 100% stock dividend. Which of the following statements correctly distinguishes the accounting treatment of these two actions?

  1. A 100% stock dividend decreases total stockholders' equity, whereas a 2-for-1 stock split has no effect on total stockholders' equity.
  2. Both actions require a journal entry to reduce retained earnings, but the stock split uses par value while the stock dividend uses fair market value.
  3. A 2-for-1 stock split requires only a memorandum entry and changes the par value per share, while a 100% stock dividend requires capitalization of retained earnings and does not change the par value per share. (correct answer)
  4. Both actions double the number of shares outstanding but have no effect on the balances of retained earnings or additional paid-in capital.
Explanation: A stock split involves no formal journal entry, only a memorandum notation; it increases the number of shares and proportionally decreases the par or stated value per share. A 100% stock dividend is a large stock dividend that requires a journal entry to transfer an amount equal to the par value of the new shares from retained earnings to the common stock account. It increases the number of shares but does not change the par value per share. Total stockholders' equity is unchanged by either action.

Question 9

On December 1, Kelvin Corp. declared a 10% stock dividend on its 300,000 outstanding shares of $2 par value common stock. The market value of the stock was $15 per share. The dividend declaration stipulated that fractional share rights for 500 equivalent shares would be paid in cash. What is the total amount that should be debited to Retained Earnings for this stock dividend and the settlement of fractional shares?

  1. $450,000 (correct answer)
  2. $60,000
  3. $457,500
  4. $67,500
Explanation: The total number of shares to be issued as a dividend is 300,000 * 10% = 30,000 shares. The dividend is a small stock dividend, so it should be recorded at market value. The total value of the dividend is 30,000 shares * $15/share = $450,000. This is the total amount debited to Retained Earnings. The settlement of fractional shares in cash is part of this total value, not in addition to it. The journal entry would be a debit to Retained Earnings for $450,000, a credit to Common Stock Dividend Distributable for the par value of the whole shares issued, a credit to APIC for the excess over par, and a credit to Cash (or Fractional Shares Payable) for the cash paid for fractional rights (500 shares * $15 = $7,500). The key is that the total debit to Retained Earnings is based on the total shares in the dividend declaration, regardless of whether they are issued as stock or settled with cash.

Question 10

At the beginning of the year, a company had 400,000 shares of common stock outstanding and a book value per share of $25.00. On June 30, the company distributed a 25% stock dividend. No other equity transactions occurred during the year, and the company reported net income of $2,000,000 for the year. What is the company's book value per share at year-end?

  1. $25.00
  2. $20.00
  3. $29.00
  4. $24.00 (correct answer)
Explanation: This requires calculating the ending book value and ending shares. Beginning total book value (equity) = 400,000 shares * $25.00/share = $10,000,000. A stock dividend (large or small) does not change total stockholders' equity; it is just a reclassification. The only change to total equity is the net income. Ending total book value = $10,000,000 + $2,000,000 (net income) = $12,000,000. The number of shares changes due to the stock dividend. Ending shares = 400,000 * (1 + 0.25) = 500,000 shares. Ending book value per share = $12,000,000 / 500,000 shares = $24.00 per share.

Question 11

On July 1, Year 1, Rax Corp. had 600,000 shares of $1 par value common stock outstanding. On September 1, Year 1, Rax declared a 10% stock dividend. For the purpose of calculating basic earnings per share (EPS) for the year ended December 31, Year 1, how are the shares from the stock dividend treated?

  1. They are weighted for the 4 months they were outstanding (September 1 to December 31).
  2. They are treated as if they were outstanding from the beginning of the year. (correct answer)
  3. They are excluded from the weighted-average calculation until the following year.
  4. They increase the numerator (net income) but do not affect the denominator (shares outstanding).
Explanation: For calculating earnings per share, stock dividends and stock splits are treated retrospectively. The shares issued are considered to have been outstanding for the entire period and for all prior periods presented. This is because a stock dividend does not represent a new infusion of capital but is a recapitalization of existing equity. Therefore, the 60,000 new shares (600,000 * 10%) are treated as outstanding from January 1, Year 1, for the weighted-average calculation.

Question 12

On December 31, Year 1, the stockholders' equity section of Triton Inc. showed 1,500,000 shares of common stock authorized, 800,000 shares issued, and a balance in the Treasury Stock account of $300,000, representing 30,000 shares purchased at $10 per share. On this date, the board declared a cash dividend of $0.75 per share, payable on January 20, Year 2. What amount should be recorded as Dividends Payable on December 31, Year 1?

  1. $600,000
  2. $577,500 (correct answer)
  3. $1,125,000
  4. $570,000
Explanation: Cash dividends are paid on shares issued and outstanding, not on treasury shares. The number of outstanding shares is the number of issued shares minus the number of treasury shares. Outstanding shares = 800,000 issued - 30,000 treasury = 770,000 shares. The total dividend liability is 770,000 shares * $0.75/share = $577,500.

Question 13

Cygnet Corp. has 20,000 shares of 5%, $100 par value, cumulative preferred stock and 100,000 shares of $5 par value common stock outstanding. Cygnet did not pay dividends in Year 1 or Year 2. In Year 3, Cygnet's board of directors declares a total dividend distribution of $80,000. What is the total amount of dividends that will be paid to the preferred shareholders?

  1. $10,000
  2. $20,000
  3. $30,000
  4. $80,000 (correct answer)
Explanation: For cumulative preferred stock, dividends in arrears must be paid before any dividends are paid to common shareholders. The annual preferred dividend is 20,000 shares * $100 par * 5% = $10,000. Dividends are in arrears for Year 1 and Year 2, totaling 2 * $10,000 = $20,000. The current year (Year 3) preferred dividend is $10,000. The total amount due to preferred shareholders is $20,000 (arrears) + $10,000 (current) = $30,000. Since the total declared dividend of $80,000 is more than the $30,000 owed to preferred shareholders, they will receive their full $30,000. Wait, reading the question again, it asks for the amount paid to preferred shareholders. The total due is $30,000. My calculation is correct. Let me re-read the stem. Ah, 2,000 shares, not 20,000. No, it is 20,000 shares. Wait, the annual dividend is 20,000 shares * $100 * 0.05 = $100,000. The company is in arrears for 2 years, so $200,000. The current year is another $100,000. Total due to preferred is $300,000. The company only declared 80,000.Sincetheamountowedtopreferred(80,000. Since the amount owed to preferred (300,000) exceeds the total dividend declared ($80,000), the entire declared amount will go to the preferred shareholders.

Question 14

Vesper Corp. declared a property dividend consisting of marketable securities. The securities had a carrying value of $200,000 on Vesper's books. On the date of declaration, the securities had a fair market value of $250,000. What is the net effect on Vesper's total retained earnings resulting from the declaration and distribution of this dividend?

  1. A decrease of $250,000.
  2. A decrease of $200,000. (correct answer)
  3. A decrease of $50,000.
  4. An increase of $50,000.
Explanation: Accounting for a property dividend is a two-step process. First, the company must recognize a gain or loss on the disposal of the asset by adjusting it to fair market value. The gain is $250,000 (fair value) - $200,000 (carrying value) = $50,000. This gain increases net income and retained earnings. Second, the company records the dividend declaration at the fair market value of the asset, which reduces retained earnings. The dividend is a debit to Retained Earnings for $250,000. The net effect is an increase of $50,000 and a decrease of $250,000, resulting in a net decrease of $200,000.

Question 15

On February 1, Year 1, Sol Corp. had 500,000 shares of $1 par value common stock outstanding. On March 1, the company declared and distributed a 20% stock dividend. On October 1, the company's board approved a 3-for-2 stock split. What is the total number of common shares outstanding and the par value per share on December 31, Year 1?

  1. 750,000 shares outstanding; $0.67 par value
  2. 750,000 shares outstanding; $1.00 par value
  3. 900,000 shares outstanding; $1.00 par value
  4. 900,000 shares outstanding; $0.67 par value (correct answer)
Explanation: This is a two-step calculation. First, the 20% stock dividend increases the number of shares. New shares from dividend = 500,000 * 20% = 100,000. Total shares after dividend = 500,000 + 100,000 = 600,000. A stock dividend does not change the par value, so it remains $1.00. Second, the 3-for-2 stock split increases the number of shares by a factor of 3/2 (or 1.5) and decreases the par value proportionally. New total shares after split = 600,000 * (3/2) = 900,000. New par value = $1.00 * (2/3) = $0.666... or approximately $0.67.

Question 16

On March 15, 2023, Phoenix Inc. declared a $0.50 per share cash dividend on its 100,000 outstanding common shares, payable April 30, 2023, to shareholders of record on April 15, 2023. Between the record date and payment date, the company repurchased 5,000 shares of its own stock. What amount should Phoenix record as cash dividends paid on April 30?

  1. $50,000 (correct answer)
  2. $47,500
  3. $52,500
  4. $45,000
Explanation: Dividends are paid to shareholders who owned stock on the record date (April 15). Since the share repurchase occurred after the record date, Phoenix must still pay dividends on all 100,000 shares that were outstanding on the record date, even though 5,000 shares were subsequently repurchased. Cash dividends paid = 100,000 shares × $0.50 = $50,000. Choice B incorrectly excludes the repurchased shares. Choice C incorrectly adds extra dividend payments. Choice D uses an incorrect calculation base.

Question 17

Atlantic Corp. declared a $2.00 per share cash dividend on its 50,000 outstanding shares on November 1, 2023, payable December 15, 2023, to shareholders of record November 30, 2023. On November 15, 2023, the company issued an additional 10,000 shares in a stock offering. What is the total amount of cash dividends that Atlantic Corp. will pay on December 15?

  1. $100,000
  2. $120,000 (correct answer)
  3. $110,000
  4. $140,000
Explanation: Dividends are paid to shareholders who own stock on the record date (November 30). Since the additional 10,000 shares were issued on November 15 (before the record date), holders of all 60,000 shares (50,000 + 10,000) are entitled to receive the dividend. Total dividend payment = 60,000 shares × $2.00 = $120,000. Choice A incorrectly uses only the original 50,000 shares. Choice C appears to use an arbitrary number between the original and total shares. Choice D uses an incorrect calculation or share count.

Question 18

Northern Corp. has the following equity accounts before declaring any dividends: Common Stock ($10 par, 40,000 shares issued and outstanding) $400,000; Additional Paid-in Capital $600,000; Retained Earnings $800,000. The company declares a 25% stock dividend when the market price is $40 per share. After recording this stock dividend, what will be the balance in Additional Paid-in Capital?

  1. $600,000 (correct answer)
  2. $700,000
  3. $900,000
  4. $1,000,000
Explanation: A 25% stock dividend is at the borderline but typically treated as a large stock dividend, recorded using the par value method. Stock dividend shares = 40,000 × 25% = 10,000 shares. Under par value method, only par value is transferred from retained earnings: 10,000 × $10 = $100,000 to Common Stock. No amount is added to Additional Paid-in Capital, so it remains $600,000. Choice B incorrectly adds the par value amount. Choice C incorrectly uses part of the market value method. Choice D incorrectly uses the full market value method calculation.

Question 19

Westfield Inc. declared a $1.25 per share cash dividend on December 10, 2023, payable January 15, 2024, to shareholders of record on January 1, 2024. The company had 80,000 shares outstanding on December 10. On December 20, 2023, Westfield issued 12,000 additional shares, and on January 5, 2024, the company repurchased 8,000 shares. What amount should be recorded as Dividends Payable on December 31, 2023?

  1. $100,000
  2. $115,000 (correct answer)
  3. $105,000
  4. $125,000
Explanation: Dividends Payable is based on shares outstanding on the record date (January 1, 2024). On December 10, there were 80,000 shares, then 12,000 were issued on December 20, making 92,000 shares outstanding on January 1. The January 5 repurchase occurs after the record date and doesn't affect the dividend obligation. Dividends Payable = 92,000 shares × $1.25 = $115,000. Choice A uses only the original 80,000 shares. Choice C incorrectly deducts the repurchased shares. Choice D uses an incorrect calculation or share count.

Question 20

Meridian Corporation has 80,000 shares of $5 par value common stock outstanding. The company declared a 30% stock dividend when the market price was $25 per share. Under the applicable accounting standards, how should Meridian record this stock dividend?

  1. Debit Retained Earnings $600,000; Credit Common Stock $120,000; Credit Additional Paid-in Capital $480,000
  2. Debit Retained Earnings $120,000; Credit Common Stock $120,000; no entry to Additional Paid-in Capital (correct answer)
  3. Debit Stock Dividends $600,000; Credit Common Stock Dividends Distributable $120,000; Credit Additional Paid-in Capital $480,000
  4. Debit Retained Earnings $500,000; Credit Common Stock $100,000; Credit Additional Paid-in Capital $400,000
Explanation: Since the stock dividend is 30% (greater than 20-25%), it should be recorded using the par value method rather than the market value method. Stock dividend shares = 80,000 × 30% = 24,000 shares. Only the par value is transferred: 24,000 shares × $5 par = $120,000. The entry debits Retained Earnings and credits Common Stock for $120,000 only. Choice A incorrectly uses the market value method. Choice C uses incorrect account titles (Stock Dividends account is closed to Retained Earnings). Choice D contains computational errors in both the amounts.