During a Reorganization, Cash Reserves Tend to Grow

question 7

Multiple Choice

During a reorganization, cash reserves tend to grow. How should interest earned on these reserves be reported on the financial statements?

• A) As deferred revenue until the reorganization is complete.
• B) As a credit directly to retained earnings.
• C) On the balance sheet as a long-term liability.
• D) On the income statement, but not classified as a reorganization item.
• E) On the income statement as a reorganization item.

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Definitions:

Common Stock Dividend

Payments made to shareholders out of a company's earnings, reflecting a portion of the profit allocated for each share of common stock.

Legal Financial Obligation

A requirement to pay money as determined by a legal process or by law.

Declared

Pertains to a dividend or other distribution officially announced by a company's board of directors to be paid to shareholders.

Automatic Dividend Reinvestment

A program that allows investors to reinvest their cash dividends in additional shares or fractional shares of the underlying stock automatically.