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Question 1

The correction in 2018 of the expensing of the $2 million cost of a tract of land acquired in 2017 would be treated as a prior period adjustment.

True

False

Question 2

Which of the following statements is true?

Dividends may be declared if sufficient retained earnings exist.

All of the above answers are true.

Dividends may, under some state laws, be declared out of paid-in capital in excess of the par or stated value of the shares outstanding.

Dividends may, in some instances, be declared even if there are no retained earnings.

Question 3

The establishment of a retained earnings appropriation reduces the total stockholders' equity shown in the balance sheet.

True

False

Question 4

During the preparation of the 2017 financial statements, a mistake was discovered which had caused $10,000 too much salaries expense to be charged in 2016 for Wilkins Corporation. Financial statements for 2016 had reported net income of $85,000, and retained earnings balances of $100,000 for January 1, 2016, and $140,000 for December 31, 2016. The tax rate for both years is 40%. Correction of the error would result in a(n):

claim for a tax refund from 2016 of $4,000.

adjusted balance for January 1, 2017, retained earnings of $110,000 in the 2017 retained earnings statement.

adjusted balance for January 1, 2017, retained earnings of $146,000 in the 2017 retained earnings statement.

additional $6,000 of net income in the 2017 income statement.

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