Chapter Thirteen Questions

Chapter Thirteen Questions - Chapter Thirteen Questions 1....

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Chapter Thirteen Questions 1. In a corporation, who is responsible for declaring dividends? The board of directors. [See text page 429.] 2. In terms of resources, what does the balance in a corporation's retained earnings represent? Retained earnings is the source of resources generated by management and kept in the company. It results from net income (resources generated by management) less dividends (resources generated by management and distributed to owners). [See text page 497.] 3. Define the term discontinued operations. The activities of a company's major segment that has been disposed of are referred to as a discontinued operation. [See text page 484.] 4. On which financial statement and in which section of the statement are discontinued operations reported? Discontinued operations are reported on the income statement in a separate section titled discontinued operations. [See text page 484.] 5. Define the term extraordinary items. An extraordinary item is an unusual and infrequent event that affects a company’s income. In addition, gains or losses on the retirement of long-term debt are classified as extraordinary items. [See text page 485.] 6. On which financial statement and in which section of the statement are extraordinary items reported? Extraordinary items are reported on the income statement in a separate section titled extraordinary items. [See text page 485.] 7. Define the term cumulative effects of changes in accounting principles.
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The cumulative effect of a change in an accounting principle is the change in income that would have occurred if the company had used a new accounting principle, instead of a previous one, for all the years the previous one had been used. Examples of changes in accounting principles would be FIFO to LIFO inventory costing and straight-line to double-declining-balance depreciation. [See text page 485.] 8. On which financial statement and in which section of the statement are cumulative effects of changes in accounting principles reported? The cumulative effects of changes in accounting principles are reported on the income statement in a separate section titled cumulative effects of changes in accounting principles. [See text page 486.] 9. What is a stock dividend? A stock dividend is the distribution of additional shares of a company’s own stock to its stockholders. Stock dividends are declared and distributed by companies who do not want to distributed cash dividends. [See text page 487.] 10. What effect does a stock dividend have on total stockholders’ equity? A stock dividend does not change total stockholders' equity. It reduces retained earnings for the market value of the shares distributed as the dividend, increases common stock for the par value of the shares, and increases additional paid-in capital for the difference between the market value of the shares and their par value. [See text page 488.]
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter Thirteen Questions - Chapter Thirteen Questions 1....

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