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Questions and Answers
A stockholder is an owner of one or more shares of a corporation.
True
Owners' equity accounts for a corporation normally are listed under a major chart of accounts division titled Capital Stock.
False
Retained earnings are earnings distributed to stockholders.
False
A dividends account has a normal debit balance and is increased by a debit.
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A dividends account has a normal debit balance and is increased by a debit.
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A group of persons elected by the stockholders to manage a corporation is called a board of directors.
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A board of directors distributes earnings of a corporation to stockholders by declaring a dividend.
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A declared dividend is classified as an expense.
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The accounts used to record the declaration of a dividend are Dividends Payable and Dividends Expense.
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When a declared dividend is paid, Dividends is debited.
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The purpose of a work sheet is to plan adjustments and summarize the information necessary to prepare financial statements.
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The Prepaid Insurance account is adjusted to show the value of insurance that has been used.
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During a fiscal period, the amount of merchandise on hand increases and decreases.
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Most accounts needing adjustments at the end of a fiscal period have a related temporary account.
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The risk of uncollectible accounts should be recorded as an expense in the same accounting period that the revenue is earned.
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The account Allowance for Uncollectible Accounts is a contra account.
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Many businesses use a percentage of total sales on account to estimate uncollectible accounts expense.
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Assets that will be used for a number of years in the operation of a business are called current assets.
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Accumulated depreciation is the depreciation expense that has been recorded since the purchase of a plant asset.
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Federal income tax is an expense of a corporation.
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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.
