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

The discrepancy between methods used for accounting purposes and methods used for tax purposes causes items in the financial statements to be shown "net of tax."

In computing book value per share of common stock, common stock distributable is included in the divisor.

If the amount of income taxes expense exceeds the amount of actual income taxes payable for a year, the difference is recorded by a debit to a balance sheet account called Deferred Income Taxes.

The quality of earnings will be affected by which of the following?

Gains and losses caused by the passage of a new law should be classified as extraordinary on the income statement.

A debit balance in the Retained Earnings account is referred to as a deficit.

A company with convertible bonds is considered to have a complex capital structure.

Retained earnings represent cash readily available for dividends.

Which of the following items should be classified as an extraordinary item on a corporate income statement?

Which of the following statements is not true about a 2-for-1 stock split?

Draw two distinctions between accounting for a stock split and accounting for a stock dividend.

Extraordinary gains and losses must be shown in the financial statements "net of tax."

Discontinued operations are considered non-operating items.

Which of the following items will not be disclosed on a statement of stockholders' equity?

The effects on individual contributed capital accounts of a conversion of preferred stock to common stock during the period are disclosed on the statement of stockholders' equity.

Why must certain income statement items be presented "net of taxes"?

Elmwood Corporation reported earnings per share of $5.00 for the year ended December 31, 2010. The following facts pertain to Elmwood Corporation: 80,000 shares of common stock were issued and outstanding on December 31, 2009. 40,000 shares of common stock were issued for cash on July 1, 2010. Net income for 2010 was $650,000. There were 8,000 shares of nonconvertible preferred stock outstanding during 2010. Dividends of $20,000 were declared and paid to common stockholders during 2010. Calculate the amount of dividends declared during 2010 on the nonconvertible preferred stock.

Why would a financial analyst consider the amount of income from continuing operations to be more useful than the amount of net income?

Which of the following is not a component of income from operations?

Assume that a corporation in the 25 percent tax bracket purchases a piece of equipment for $70,000 with a ten-year useful life and no estimated salvage value. The corporation uses straight-line depreciation for book purposes and double-declining-balance depreciation for tax purposes. The first-year temporary difference, using income tax allocation procedures, would result in a