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    Current ratios, working capital, retained earnings, stock

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    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 a particular item, be sure to indicate ALL applicable letters. (Assume that the state statutes do not permit declaration of non liquidating dividends except from earnings)

    1. Declaration of a cash dividend due in one month on a noncumulative preferred stock
    2. Declaration and payment of an ordinary stock dividend
    3. Receipt of a cash dividend, not previously recorded, on stock of another corporation
    4. Passing of a dividend on cumulative preferred stock
    5. Receipt of preferred shares as a dividend on stock held as a temporary investment. This was not a regularly recurring dividend.
    6. Payment of dividend mentioned in 1
    7. Issue of new common shares in a 5-for-1 stock split.

    a. Reduces working capital
    b. Increases working capital
    c. Reduces current ratio
    d. Increases current ratio
    e. Reduces the dollar amount of total capital stock
    f. Increases the dollar amount of total capital stock
    g. Reduces total retained earnings
    h. Increases total retained earnings
    i. Reduces equity per share of common stock
    j. Reduces equity of each common stockholder

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    Solution Summary

    The solution contains an explanation of current ratios, working capital, retaining earnings and stocks.