Accounting Chapter on Stockholders and Dividends
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Questions and Answers

A stockholder is an owner of one or more shares of a corporation.

True (A)

Owners' equity accounts for a corporation normally are listed under a major chart of accounts division titled Capital Stock.

False (B)

Retained earnings are earnings distributed to stockholders.

False (B)

A dividends account has a normal debit balance and is increased by a debit.

<p>False (B)</p> Signup and view all the answers

A dividends account has a normal debit balance and is increased by a debit.

<p>True (A)</p> Signup and view all the answers

A group of persons elected by the stockholders to manage a corporation is called a board of directors.

<p>True (A)</p> Signup and view all the answers

A board of directors distributes earnings of a corporation to stockholders by declaring a dividend.

<p>True (A)</p> Signup and view all the answers

A declared dividend is classified as an expense.

<p>False (B)</p> Signup and view all the answers

The accounts used to record the declaration of a dividend are Dividends Payable and Dividends Expense.

<p>False (B)</p> Signup and view all the answers

When a declared dividend is paid, Dividends is debited.

<p>True (A)</p> Signup and view all the answers

The purpose of a work sheet is to plan adjustments and summarize the information necessary to prepare financial statements.

<p>True (A)</p> Signup and view all the answers

The Prepaid Insurance account is adjusted to show the value of insurance that has been used.

<p>True (A)</p> Signup and view all the answers

During a fiscal period, the amount of merchandise on hand increases and decreases.

<p>True (A)</p> Signup and view all the answers

Most accounts needing adjustments at the end of a fiscal period have a related temporary account.

<p>True (A)</p> Signup and view all the answers

The risk of uncollectible accounts should be recorded as an expense in the same accounting period that the revenue is earned.

<p>True (A)</p> Signup and view all the answers

The account Allowance for Uncollectible Accounts is a contra account.

<p>True (A)</p> Signup and view all the answers

Many businesses use a percentage of total sales on account to estimate uncollectible accounts expense.

<p>True (A)</p> Signup and view all the answers

Assets that will be used for a number of years in the operation of a business are called current assets.

<p>False (B)</p> Signup and view all the answers

Accumulated depreciation is the depreciation expense that has been recorded since the purchase of a plant asset.

<p>True (A)</p> Signup and view all the answers

Federal income tax is an expense of a corporation.

<p>True (A)</p> Signup and view all the answers

Flashcards

What is a Stockholder?

A stockholder is someone who owns one or more shares of stock in a corporation.

Is Capital Stock the only place for Owners' Equity?

Capital Stock is a broad category that encompasses various equity accounts, but not all owners' equity accounts fall under it.

What are Retained Earnings?

Retained earnings represent the accumulated profits of a corporation that haven't been distributed to stockholders.

Debit or Credit for Dividends Account?

The Dividends account has a normal debit balance. Debits increase the balance of the account.

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Who are the Board of Directors?

A group of individuals elected by stockholders to guide a corporation's direction.

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How are Dividends Paid Out?

The board of directors distributes portions of the corporation's earnings among stockholders via dividends.

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Is Declaring Dividends an Expense?

Declaring dividends doesn't directly affect the earnings of the company. It's a commitment, not an expense.

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What Accounts are Used When Declaring Dividends?

The accounts used are Dividends Payable (a liability) and Retained Earnings (a equity account).

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What Occurs When a Dividend is Paid?

When a dividend is paid out, the company reduces its liability (Dividends Payable) by debiting it.

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What is a Worksheet?

A worksheet helps organize information and plan adjustments needed for creating accurate financial statements.

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How is Prepaid Insurance Adjusted?

The Prepaid Insurance account needs adjustment to reflect the portion of insurance coverage that has already been used up.

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Merchandise Changes During Accounting Period?

Merchandise on hand goes up or down throughout a fiscal period based on sales and purchases.

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What's the Relationship of Accounts needing Adjustments?

Most accounts needing adjustments at the end of a fiscal period have a related temporary account to track the adjustments.

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When should Bad Debt be Accounted for?

The risk of bad debt (uncollectible accounts) should be accounted for in the same period as the related revenue is earned.

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What is the Allowance for Uncollectible Accounts?

The Allowance for Uncollectible Accounts is a contra-asset account, meaning it reduces the value of the related asset, Accounts Receivable.

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How to Estimate Uncollectible Accounts?

Many businesses use a percentage of their total sales on account to estimate how much they may not collect from their customers.

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What are Current Assets?

Current assets are assets expected to be used up or converted to cash within one year.

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What is Accumulated Depreciation?

Accumulated depreciation represents the total amount of depreciation expense that has been recorded on an asset since it was acquired.

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Is Federal Income Tax an Expense?

Federal income tax is a cost of doing business for corporations, just like any other expense, and thus it is recorded as an expense.

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Study Notes

Stockholders and Equity

  • Stockholders are individuals or entities that own one or more shares of a corporation.
  • Owners' equity is not solely listed under Capital Stock; this is a misconception.
  • Retained earnings represent profits not distributed to stockholders.

Dividends

  • A dividends account typically has a normal debit balance and is increased by a debit.
  • The board of directors is responsible for managing a corporation and declaring dividends to distribute earnings.
  • Declared dividends are not classified as expenses; they are distributions of earnings.

Financial Statements Preparation

  • When a declared dividend is paid, the Dividends account is debited.
  • The work sheet is essential for planning adjustments and summarizing information for financial statement preparation.
  • Prepaid Insurance accounts are adjusted to reflect the value of insurance that has been used during a period.

Inventory and Adjustments

  • Inventory levels fluctuate, increasing and decreasing throughout a fiscal period.
  • Most accounts requiring adjustments at the end of a fiscal period have related temporary accounts.

Uncollectible Accounts and Depreciation

  • Risks of uncollectible accounts should be expensed in the same period the related revenue is recognized.
  • Allowance for Uncollectible Accounts is classified as a contra account, impacting the overall asset valuation.
  • Businesses often use a percentage of total sales on account to estimate expenses related to uncollectible accounts.

Assets and Depreciation

  • Assets intended for long-term use in a business are classified as non-current assets, not current assets.
  • Accumulated depreciation represents the total depreciation expense that has been recorded since acquiring a plant asset.
  • Federal income tax is categorized as an expense incurred by a corporation.

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Description

This quiz covers key concepts in accounting related to stockholders, equity, and dividends. It explains the roles of stockholders, the nature of owners' equity, and the process of declaring and distributing dividends. Additionally, it delves into financial statements and inventory adjustments, providing a comprehensive overview of these fundamental topics.

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