Indicate whether each of the following statements is true or false. ________ a) An appropriation of retained earnings limits the amount available for dividends.________ b) Appropriating retained earnings is considered an asset exchange transaction.________ c) An appropriation is recorded as a debit to the appropriated retained earnings account and a credit to retained earnings.________ d) One reason for an appropriation of retained earnings is that there may be restrictive covenants in credit agreements.________ e) An appropriation has no effect on the accounting equation.
What will be an ideal response?
a) T b) F c) F d) T e) T
a) This is true. Only unappropriated retained earnings are available for dividends.
b) This is false. Appropriating retained earnings is a claims exchange transaction.
c) This is false. The appropriation is recorded as a debit (decrease) to retained earnings and a credit (increase) to appropriated retained earnings.
d) This is true. Some debt covenants require the appropriation of retained earnings.
e) This is true. The appropriation does not affect total stockholders' equity.
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