Statements about retained earnings restrictions

Question

Problem 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.

Problem 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%.

Problem 3: 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

What is the return on common stockholders' equity ratio for Remington?

• 8.7%
• 18.0%
• 15.3%
• 11.3%

Problem 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

Problem 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.

Problem 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.