If a Firm Has Retained Earnings of $4 Million, a Common

question 69

Multiple Choice

If a firm has retained earnings of $4 million, a common shares account of $7 million, and additional paid-in-capital of $3 million, how much would be transferred in (or out) of these accounts in response to a 20 percent stock dividend, respectively?

• A) − 20 percent, 0 percent, + 20 percent
• B) − 20 percent, + 20 percent, 0 percent
• C) − 50 percent, + 20 percent, + 20 percent
• D) − 50 percent, + 25 percent, + 25 percent

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Definitions:

Adjusting Entry

An accounting journal entry made at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Allowance for Doubtful Accounts

A contra asset account that represents an estimate of the amount of accounts receivable that may not be collectible.

Uncollectible Accounts

Accounts receivable that a company has deemed unlikely to be collected and thus written off as a loss.

Adjusting Entries

Journal entries made at the end of an accounting period to allocate revenue and expenses to the period in which they actually occurred.