1. In the real world, we find that dividends:

a) usually exhibit greater stability than earnings.

b) fluctuate more widely than earnings.

c) tend to be a lower percentage of earnings for mature firms than for newer firms.

d) are usually set as a fixed percentage of earnings every year.

2. The company with the common equity accounts shown here has declared a 10 percent stock dividend when the market value of its stock is $20 per share. What is the capital surplus account after the 10 percent stock dividend?

Common stock ($1 par value)          $ 406,000

Capital Surplus                                 1,340,000

Retained earnings                             3,427,000

Total owners’ equity                         $ 5,173,000

a) $568,600

b) $1,218,000

c) $1,380,600

d) $2,111,400

e) $3,467,600