Exam 16: Retained Earnings and Earnings Per Share

The Michael Company's stockholders' equity accounts have the following balances as of December 31, 2014: On January 2, 2015, the board of directors of Michael declared a 10% stock dividend to be distributed on February 15, 2015. The market price of Michael Company's common stock was $75 per share on January 2, 2015. On the date of declaration, the retained earnings account should be decreased by

Which of the following could be a component of other comprehensive income (loss)?

Basic earnings per share is computed as

On January 1, 2014, Jerry Co. had 25,000 shares of common stock outstanding. On April 1, 2014 it had a 10% stock dividend. On October 1, 2015 it had a 4:1 stock split. Required: a.Determine the weighted average common stock outstanding used in the basic earnings per share computation at 12/31/2014. b.Determine the weighted average common stock outstanding used in the basic earnings per share computation at 12/31/2015. c.Jerry will be issuing comparative financial statements for 2014 and 2015. What number of shares should be used in the earnings per share computation for 2014 and 2015? Why?

Common shares outstanding are increased as a result of a stock dividend or stock split. For purposes of calculating the earnings per share, when is the stock dividend or stock split considered to have occurred?

Which of the following stockholders' equity disclosures are required under both GAAP and IFRS?

Smith Corporation had 30,000 shares of common stock outstanding during the year. In addition, there were compensatory share options to purchase 3,000 shares of common stock at $20 a share outstanding the entire year. The average market price for the common stock during the year was $36 a share. The unrecognized compensation cost (net of tax) relating to these options was $4 a share. The denominator to compute the diluted earnings per share is

On January 1, 2014, a corporation had 10,380 shares of common stock outstanding, and on June 1, it reacquired 6,000 shares. Despite a net loss for the year of $180,000, the company declared and paid cash dividends of $24,000 and $28,000 on common and preferred stock, respectively. The earnings per share for 2014 was

Which of the following is an error that would require a company to record a prior period adjustment?

The assumed conversion of convertible debt and preferred stock in diluted earnings per share calculations affects

Graham, Inc. began 2015 with 25,000 common shares outstanding and issued a 20% stock dividend on August 1. The company issued 6,000 shares on December 1. Graham also has 18,000 shares of 9%, $20 par, cumulative preferred stock outstanding on which no dividends have been paid during either 2014 or 2015. Net income for 2015 was $175,600. Required: Compute Graham, Inc.'s basic earnings per share for 2015.

During 2014, Sanders, Inc. had the following convertible securities outstanding: A.$220,000 of 10%, $100 par, convertible preferred stock. Each share is convertible into 5 shares of common stock. B.$200,000 of 9.5% convertible bonds. Each $1,000 bond is convertible into 45 shares of common stock. C.$100,000 of 8% convertible bonds. Each $1,000 bond is convertible into 32 shares of common stock. D.$150,000 of 11%, $100 par, convertible preferred stock. Each share is convertible into 5 shares of common stock. Sanders, Inc. has an income tax rate of 40%. Required: a.Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. b.Prepare a ranking of the order in which the securities would be included in the diluted earnings per share calculations.

During 2014, Penny Co. had net income of $200,000 including after-tax interest expense of $30,000 on convertible bonds. The $300,000 face value of convertible bonds can be converted into common stock at the rate of 300 shares per $1,000 bond. Prior to the conversion, there were 400,000 shares of common stock outstanding. The fully diluted earnings per share is

On January 1, a corporation had 15,380 shares of common stock outstanding. On August 1, it sold an additional 5,000 shares. During the year, dividends of $4,800 and $56,000 were declared and paid on the common and preferred stock, respectively. Net income for the year was $250,000. The basic earnings per share for the year was (round to the nearest whole dollar)

On January 1, 2014, Wade Corporation had 24,000 shares of common stock outstanding. On April 1, it reacquired 2,400 shares; on July 1, it issued 10,800 shares; on October 1, it issued another 9,600 shares; and on December 1, it reacquired 900 shares. The weighted average number of common shares outstanding for 2014 was

When a property dividend is declared, fair value is determined on the ex-dividend date.

A small stock dividend is accounted for by transferring from retained earnings to contributed capital an amount equal to the par value of the additional shares issued.

What three items rarely affect retained earnings?

A dividend that represents a return of capital rather than a distribution of retained earnings is called a

In 2014, Cunningham Company determined that it did not accrue $15,000 of interest expense in 2013, which caused a material overstatement of income. Assuming a 35% tax rate, which of the following is the entries would be correct to fix the error?