Table 13-9
Following Is the JenWu Corporation December 31, 2017

question 145

Multiple Choice

Table 13-9
Following is the JenWu Corporation December 31, 2017 shareholders' equity section of the balance sheet, prior to the closing entries:
$$\begin{array} { | l | r | } \hline \text { Contributed capital: } & \\\hline \text { Preferred shares, cumulative, } \$ 5.00,6,000 \text { shares outstanding, } & \\\hline \text { liquidation value } \$ 42 \text { per share } & \$ 220,000 \\\hline \text { Common shares, } 30,000 \text { shares outstanding } & 500,000 \\\hline \text { Retained earnings/(deficit) } & ( 240,000 ) \\\hline\end{array}$$ Note: No dividends were declared in 2015 or 2016. The net income for 2017 was $260,000.
-Referring to Table 13-9,which of the following is correct if the JenWu board of directors declares the maximum dividend possible on the preferred shares?

• A) \[\begin{array} { | c | r | r | }
• \hline \text { Dr. Retained Earnings } & 20,000 & \\
• \hline \text { Cr. Preferred Dividend Payable } & & 20,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | r | r | }
• \hline \text { Dr. Retained Earnings } & 90,000 & \\
• \hline \text { Cr. Preferred Dividend Payable } & & 90,000 \\
• \hline
• \end{array}\]
• C) No entry because there is a deficit balance in Retained Earnings.
• D) \[\begin{array} { | c | r | r | }
• \hline \text { Dr. Retained Earnings } & 20,000 & \\
• \hline \text { Cr. Preferred Dividend Payable } & & 10,000 \\
• \hline \text { Cr. Common Dividend Payable } & & 10,000 \\
• \hline
• \end{array}\]

---

Definitions:

Systematic Risk

The exposure to uncertainty within the entire market or a segment of the market that remains despite the diversification of assets.

Portfolio

A collection of investments, such as stocks, bonds, and other financial assets, held by an individual or institution.

Funds

Financial assets or resources saved or made available for a specific purpose or investment.

Beta

A measure of a stock's volatility in relation to the overall market; it indicates the risk associated with a security’s returns in comparison to the market's returns.