Retained earnings restrictions

Question

Question 1: Which of the following statements about retained earnings restrictions is incorrect?

• Retained earnings restrictions are generally disclosed through a journal entry on the books of a company.
• Many states require a corporation to restrict retained earnings for the cost of treasury stock purchased.
• Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan.
• The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes.

Question 2: Harris Corporation had net income of $230,000 and paid dividends of $50,000 to common stockholders and $20,000 to preferred stockholders in 2010. Harris Corporation's common stockholders' equity at the beginning and end of 2010 was $870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of common stock outstanding.
Harris Corporation's return on common stockholders' equity was

• 23%.
• 21%.
• 18%.
• 16%.

Assume that all balance sheet amounts for Remington Company represent average balance figures.

Stockholders' equity-common	$150,000
Total stockholders' equity	200,000
Sales	100,000
Net income	27,000
Number of shares of common stock	10,000
Common stock dividends	10,000
Preferred stock dividends	4,000

Question 3: What is the return on common stockholders’ equity ratio for Remington?

• 8.7%
• 18.0%
• 15.3%
• 11.3%

Question 4: During 2010 Silas Inc. had sales revenue $564,000, gross profit $264,000, operating expenses $99,000, cash dividends $45,000, other expenses and losses $30,000. Its corporate tax rate is 30%. What was Silas's income tax expense for the year?

• $79,200
• $169,200
• $40,500
• $27,000

Question 5: West, Inc. has a net income of $500,000 for 2010, and there are 200,000 weighted-average shares of common stock outstanding. Dividends declared and paid during the year amounted to $80,000 on the preferred stock and $120,000 on the common stock. The earnings per share for 2010 is:

• $2.50.
• $1.50.
• $1.90.
• $2.10.

Question 6: In determining earnings per share, dividends for the current year on noncumulative preferred stock should be

• deducted from net income whether declared or not.
• disregarded.
• added back to net income whether declared or not.
• deducted from net income only if declared.