A Corporation Was Organized on January 1

question 116

Multiple Choice

A corporation was organized on January 1. At that time, 10,000 shares of common were sold and issued at $10.00 per share cash. $20,000 of the proceeds was used to purchase equipment. The corporation had promised to pay $2.00 per share in dividends during the year if income exceeded $40,000. As it turned out, income was $60,000 however, due to a severe cash shortage the corporation declared a scrip dividend (resulting in a current liability) rather than an immediate cash dividend. If no other transaction occurred which would affect retained earnings, the corporation should report on December 31, retained earnings of:

• A) $160,000
• B) $40,000
• C) $60,000
• D) $20,000

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Definitions:

Phillips Curve

An economic theory proposing an inverse relationship between unemployment and inflation, suggesting that lower unemployment comes with higher inflation and vice versa.

Expansionary Monetary Policy

A policy by the central bank to increase the money supply and decrease interest rates to stimulate economic growth.

Short-run Phillips Curve

A graphical representation in economics showing a short-term inverse relationship between inflation and unemployment rates.

Long-run Aggregate-supply Curve

Represents the total quantity of goods and services that producers in an economy are willing and able to supply at different price levels when all production inputs are variable.