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    Financial Statements and Analysis. See attached file for full problem description.

    P11-6 For each of the following numbered items, you are to select the lettered item(s) that indicate(s) its effect(s) on the corporation's statements. If more than one effect is applicable to particular item, be sure to indicate all applicable letters. (Assume that the state statutes do not permit declaration of nonliquidating dividends except from earnings.)

    Item Effect
    1. Declaration of a cash dividend due in 1 month. a. Reduces working capital
    on noncumulative preferred stock. b. Increases working capital
    2. Declaration and payment of an c. Reduces current ratio
    ordinary stock dividend. d. Increases current ratio
    3. Receipt of a cash dividend, not previously e. Reduces the dollar amount of total
    recorded, on stock of another corporation capital stock
    4. Passing of a dividend on cumulative f. Increases the dollar amount of
    preferred stocks. total capital stock
    5. Receipt of preferred shares as a dividend on g. Reduces total retained earnings
    stock held as a temporary investment. This was h. Increase total retained earnings
    not a regularly recurring dividend. i. Reduces equity per share of
    6. Payment of dividend mentioned in 1. common stock
    7. Issue of new common shares in a 5-for-1 j. Reduces equity of each common
    stock split. stockholder

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    Answer:

    1. Declaration of a cash dividend due in 1 month on noncumulative preferred stock.

    Journal entries
    Preferred dividends xxx
    Dividends payable xxx

    Retained earnings xxx
    Preferred dividends xxx

    Effect: e and g because the dividends to be paid will reduce total retained earnings and the dollar amount of total capital stock.
    a and c because the dividends payable is regarded as ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer the selection of the lettered item(s) that indicate(s) its effect(s) on the corporation's statements.

    $2.49

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