Question 1

Which of the following transactions affects total retained earnings?

Accepted Answer

A)  Purchase of treasury stock 
B)  Payment of previously declared cash dividend 
C)  Declaration of a stock dividend 
D)  Declaration of a stock split 
A)  Purchase of treasury stock 
B)  Payment of previously declared cash dividend 
C)  Declaration of a stock dividend 
D)  Declaration of a stock split

Question 2

A statement of stockholders' equity cannot take the place of a statement of retained earnings.

Accepted Answer

A) True 
 B)False

Question 3

What effect will the purchase of treasury stock have on total stockholders' equity and earnings per share, respectively?

Accepted Answer

A)  Increase and decrease 
B)  Decrease and increase 
C)  Decrease and no effect 
D)  Decrease and decrease 
A)  Increase and decrease 
B)  Decrease and increase 
C)  Decrease and no effect 
D)  Decrease and decrease

Question 4

All of the following would appear on the statement of stockholders' equity except

Accepted Answer

A)  declaration of cash dividends. 
B)  an issuance of common stock. 
C)  net income. 
D)  declaration of a stock split. 
A)  declaration of cash dividends. 
B)  an issuance of common stock. 
C)  net income. 
D)  declaration of a stock split.

Question 5

Gains and losses from the takeover of property by a foreign government are treated as discontinued operations.

Accepted Answer

A) True 
 B)False

Question 6

An extraordinary loss of $250,000 that results in income tax savings of $60,000 should be reported as an extraordinary loss (net of tax) of $190,000 on the income statement.

Accepted Answer

A) True 
 B)False

Question 7

A small stock dividend should be recorded on the basis of

Accepted Answer

A)  par or stated value. 
B)  original issue price. 
C)  market value. 
D)  cost. 
A)  par or stated value. 
B)  original issue price. 
C)  market value. 
D)  cost.

Question 8

When common stock is originally issued, its market value per share should approximate its par or stated value per share.

Accepted Answer

A) True 
 B)False

Question 9

A company with stock options is considered to have a simple capital structure.

Accepted Answer

A) True 
 B)False

Question 10

A stock split normally increases total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 11

Heywood Enterprises is a famous entertainment company that produces films and operates theme parks, among other things. The company is also well known as a profitable and well-managed business. On November 15, 2010 08, the following article appeared in the financial section of the local newspaper:
"Heywood Reports Fiscal 4th-Period Loss after Taking $166 Million Write-Down."
Heywood Enterprises reported a $64 million net loss for its fiscal fourth quarter ended Sept. 30, after writing down a record $166 million in movies and other properties.
In the year-earlier quarter, Heywood had net income of $24.5 million, or 70 cents a share. Fourth-quarter revenue this year rose 28% to $463.2 million from $363 million.
In the fiscal year, the entertainment company's earnings rose 5% to $97.8 million, or $2.73 a share, from $93.2 million, or $2.70 a share, a year earlier. Revenue rose 27% to $1.66 billion from $1.31 billion.
The company said it wrote down $112 million in motion picture and television properties.
The write-down involves productions that already have been released as well as ones still under development, but Heywood declined to identify the productions or projects involved.
"This just reflects the judgment of new management about the ultimate value of projects we had under way," said Marcia Fennel, Heywood's executive vice president for finance.
The company also said it charged off $40 million to reflect the "abandonment" of a number of planned projects at its various theme parks. An additional $14 million was charged off as a reserve to cover possible legal obligations resulting from the company's fight to ward off a pair of successive takeover attempts last summer, Ms. Fennel said.
Heywood said its full-year net income included a $76 million extraordinary gain. The change will boost that quarter's reported net income to $85 million, from $9 million.
a. What two categories of issues does the user of financial statements want to consider when evaluating the quality of a company's reported earnings? Did Heywood have one or both types of items in fiscal 2010 08?
a. Which comparisons do you believe give the best picture of Heywood's performance?
b. Compare the fourth-period earnings or losses for 2009 and 2010 and full fiscal 2009 and 2010 earnings or losses before and after adjusting for the item or items described in

Accepted Answer

a. The user of financial statements must

Question 12

An excess of income taxes expense over income taxes payable for a period is associated with a(n)

Accepted Answer

A)  excess of taxable income over accounting income. 
B)  error. 
C)  debit to the Deferred Income Taxes account. 
D)  excess of accounting income over taxable income. 
A)  excess of taxable income over accounting income. 
B)  error. 
C)  debit to the Deferred Income Taxes account. 
D)  excess of accounting income over taxable income.

Question 13

When there is a difference in the timing of revenues and expenses for accounting versus income tax purposes, it usually is necessary to

Accepted Answer

A)  adjust accounting income. 
B)  perform income tax allocation procedures. 
C)  adjust taxable income. 
D)  do nothing because such differences are a result of two different sets of rules. 
A)  adjust accounting income. 
B)  perform income tax allocation procedures. 
C)  adjust taxable income. 
D)  do nothing because such differences are a result of two different sets of rules.

Question 14

The income statement's bottom-line figure (net income or loss) must be shown "net of tax."

Accepted Answer

A) True 
 B)False

Question 15

When alternative acceptable accounting methods exist, a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the

Accepted Answer

A)  lowest amount of future earnings. 
B)  greatest amount of retained earnings currently. 
C)  lowest amount of current earnings. 
D)  greatest amount of assets currently. 
A)  lowest amount of future earnings. 
B)  greatest amount of retained earnings currently. 
C)  lowest amount of current earnings. 
D)  greatest amount of assets currently.

Question 16

The following facts pertain to the stockholders' equity section of the balance sheet of Vanowen Corporation:
   During 2010, Vanowen declared and distributed a stock dividend. Also during 2010, Vanowen declared and paid cash dividends of $20,000. There were no changes in the number of shares of stock issued and outstanding during the period except for the change caused by the stock dividend. Calculate the amount of net income reported by Vanowen for 2010.

Accepted Answer

$44,000 [210,000 - (

Question 17

How will the declaration and distribution of a 10 percent stock dividend affect the issuing corporation's balance of retained earnings and total stockholders' equity, respectively?

Accepted Answer

A)  Decrease and no effect 
B)  No effect and no effect 
C)  Decrease and decrease 
D)  No effect and decrease 
A)  Decrease and no effect 
B)  No effect and no effect 
C)  Decrease and decrease 
D)  No effect and decrease

Question 18

Which of the following items would appear in the income statement below the others listed?

Accepted Answer

A)  Extraordinary gains and losses 
B)  Restructurings 
C)  Discontinued operations 
D)  Income taxes expense 
A)  Extraordinary gains and losses 
B)  Restructurings 
C)  Discontinued operations 
D)  Income taxes expense

Question 19

The purpose of a statement of stockholders' equity is to

Accepted Answer

A)  disclose the computation of book value per share of stock. 
B)  budget the transactions expected to occur during the forthcoming period. 
C)  replace the statement of retained earnings. 
D)  summarize the changes in the components of stockholders' equity for a period of time. 
A)  disclose the computation of book value per share of stock. 
B)  budget the transactions expected to occur during the forthcoming period. 
C)  replace the statement of retained earnings. 
D)  summarize the changes in the components of stockholders' equity for a period of time.

Question 20

The existence of which of the following income statement items will reduce the quality of the bottom-line figure?

Accepted Answer

A)  Advertising expense 
B)  Revenues from services 
C)  Cost of goods sold 
D)  Extraordinary gain 
A)  Advertising expense 
B)  Revenues from services 
C)  Cost of goods sold 
D)  Extraordinary gain

Exam 14: The Corporate Income Statement and the Statement of Stockholders Equity

Which of the following transactions affects total retained earnings?

A statement of stockholders' equity cannot take the place of a statement of retained earnings.

What effect will the purchase of treasury stock have on total stockholders' equity and earnings per share, respectively?

All of the following would appear on the statement of stockholders' equity except

Gains and losses from the takeover of property by a foreign government are treated as discontinued operations.

An extraordinary loss of $250,000 that results in income tax savings of $60,000 should be reported as an extraordinary loss (net of tax) of $190,000 on the income statement.

A small stock dividend should be recorded on the basis of

When common stock is originally issued, its market value per share should approximate its par or stated value per share.

A company with stock options is considered to have a simple capital structure.

A stock split normally increases total stockholders' equity.

An excess of income taxes expense over income taxes payable for a period is associated with a(n)

When there is a difference in the timing of revenues and expenses for accounting versus income tax purposes, it usually is necessary to

The income statement's bottom-line figure (net income or loss) must be shown "net of tax."

When alternative acceptable accounting methods exist, a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the

How will the declaration and distribution of a 10 percent stock dividend affect the issuing corporation's balance of retained earnings and total stockholders' equity, respectively?

Which of the following items would appear in the income statement below the others listed?

The purpose of a statement of stockholders' equity is to

The existence of which of the following income statement items will reduce the quality of the bottom-line figure?

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Completing the Accounting Cycle

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

Long Term Liabilities

The Statement of Cash Flows

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

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