Question 1

Of the items listed, which would appear closest to the bottom of the income statement?

Accepted Answer

A)  Extraordinary items. 
B)  Prior period adjustment. 
C)  Income from continuing operations. 
D)  Discontinued operations. 
A)  Extraordinary items. 
B)  Prior period adjustment. 
C)  Income from continuing operations. 
D)  Discontinued operations.

Question 2

Prior period adjustments are shown in the financial statements by adjusting the beginning balance of retained earnings in the statement of retained earnings.

Accepted Answer

A) True 
 B)False

Question 3

The following two items are disclosed in the stockholders' equity section of Cort Corporation's December 31, 2010, balance sheet: Treasury stock (500 shares, at cost) $50,000
Additional paid-in capital: treasury stock transactions 22,500
If the company had reacquired 3,000 shares of treasury stock in February of 2010 then some of the treasury stock must have been sold during 2010 for:

Accepted Answer

A)  $9 per share above its par value. 
B)  $9 per share. 
C)  $109 per share. 
D)  $109 per share above its cost. 
A)  $9 per share above its par value. 
B)  $9 per share. 
C)  $109 per share. 
D)  $109 per share above its cost.

Question 4

Comprehensive income is a component of net income.

Accepted Answer

A) True 
 B)False

Question 5

The statement of retained earnings:

Accepted Answer

A)  Includes prior period adjustments, cash dividends, and stock dividends. 
B)  Indicates the amount of cash available for the payment of dividends. 
C)  Need not be prepared if a separate statement of stockholders' equity accompanies the financial statements. 
D)  Shows revenue, expenses, and dividends for the accounting period. 
A)  Includes prior period adjustments, cash dividends, and stock dividends. 
B)  Indicates the amount of cash available for the payment of dividends. 
C)  Need not be prepared if a separate statement of stockholders' equity accompanies the financial statements. 
D)  Shows revenue, expenses, and dividends for the accounting period.

Question 6

Income statement and earnings per share
Shown below is information relating to operations of Broadway Industries for 2009:
 
In the space provided, complete the income statement for Broadway Industries, including earnings per share figures. Broadway Industries has 100,000 shares of a single class of common stock outstanding throughout the year.

Accepted Answer

The answer of Income statement and earnings per share
Shown below...

Question 7

Earnings per share is equal to net income applicable to common stock, divided by the weighted number of common shares outstanding.

Accepted Answer

A) True 
 B)False

Question 8

Refer to the information above. What was the original cost of the treasury stock to Caesar Corporation?

Accepted Answer

A)  $5 per share. 
B)  $7 per share. 
C)  $8 per share. 
D)  Cannot be determined. 
A)  $5 per share. 
B)  $7 per share. 
C)  $8 per share. 
D)  Cannot be determined.

Question 9

At the beginning of the current year, Bard Corporation had 400,000 shares of $1 par common stock outstanding and had retained earnings of $11,000,000. During the year, the company earned $5,000,000, declared a 5% stock dividend when the price of stock was $25 per share, and paid a year-end cash dividend of $2 per share. (The cash dividend was paid after the stock dividend had been distributed.) Bard Corporation's retained earnings at the end of the year amount to:

Accepted Answer

A)  $16,000,000. 
B)  $14,660,000. 
C)  $14,320,000. 
D)  $14,700,000. 
A)  $16,000,000. 
B)  $14,660,000. 
C)  $14,320,000. 
D)  $14,700,000.

Question 10

For the current year, Voque Company reported basic earnings per share of $8 and diluted earnings per share of $3. The difference between these figures is attributable to outstanding shares of convertible preferred stock. If all this preferred stock had actually been converted into common stock at the beginning of the current year, Voque Company would have reported only one earnings per share amount, which would have been:

Accepted Answer

A)  $8. 
B)  $5. 
C)  $3. 
D)  Cannot be determined. 
A)  $8. 
B)  $5. 
C)  $3. 
D)  Cannot be determined.

Question 11

Which of the following would have no effect on Retained Earnings?

Accepted Answer

A)  Declaration of a cash dividend. 
B)  Declaration of a stock dividend. 
C)  Declaration of a stock split. 
D)  A prior period adjustment. 
A)  Declaration of a cash dividend. 
B)  Declaration of a stock dividend. 
C)  Declaration of a stock split. 
D)  A prior period adjustment.

Question 12

The price earnings ratio is based on expected future earnings, while the earnings per share ratio is based on historical earnings.

Accepted Answer

A) True 
 B)False

Question 13

In determining earnings per share when a preferred stock has dividends in arrears, only the current year's dividend is deducted to arrive at earnings per share.

Accepted Answer

A) True 
 B)False

Question 14

A statement of stockholders' equity discloses each of the following except:

Accepted Answer

A)  The market value of the stockholders' equity at the end of the year. 
B)  The cost of treasury stock owned at the end of the year. 
C)  Net income for the current year. 
D)  The amount of cash dividends declared during the current year. 
A)  The market value of the stockholders' equity at the end of the year. 
B)  The cost of treasury stock owned at the end of the year. 
C)  Net income for the current year. 
D)  The amount of cash dividends declared during the current year.

Question 15

Sovereign Foods suffered a $1,500,000 loss (net of tax) when the FDA prohibited the sale of food products containing red dye no. 3. On its other products, Sovereign Foods had net sales of $6,580,000 and costs and other expenses of $6,505,000. Which of the following statements is not true? (Ignore taxes)

Accepted Answer

A)  Sovereign Foods reports a net loss of $1,425,000 for the current year. 
B)  Sovereign Foods reports income before extraordinary items of $75,000. 
C)  Sovereign Foods combines the $1,500,000 loss with its other costs and expenses of $6,505,000, since this item does not qualify for any special disclosure. 
D)  Sovereign Foods shows the $1,500,000 loss in a separate section of the income statement as an extraordinary item. 
A)  Sovereign Foods reports a net loss of $1,425,000 for the current year. 
B)  Sovereign Foods reports income before extraordinary items of $75,000. 
C)  Sovereign Foods combines the $1,500,000 loss with its other costs and expenses of $6,505,000, since this item does not qualify for any special disclosure. 
D)  Sovereign Foods shows the $1,500,000 loss in a separate section of the income statement as an extraordinary item.

Question 16

Stockholders' equity
The stockholders' equity section of the balance sheet of Nautilus Corporation at December 31, 2010, appears as follows:
 
Answer the following questions based on the stockholders' equity section given above. Each question is a separate situation, unless otherwise indicated.
(a). What is the total dollar amount paid annually as dividends to preferred stockholders?
(b). What was the average issue price per share of preferred stock?
(c). What was the average issue price per share of common stock?
(d). How many shares of common stock are outstanding?
(e). What is the book value per share of the common stock?
(f). If all the treasury stock is reissued at a price of $45 per share, what amount will be credited to the account Additional Paid-In Capital: Treasury Stock Transactions?

Accepted Answer

(a) $100 par x 8% x 14,000 shares = $112

Question 17

A 2-for-1 stock split:

Accepted Answer

A)  Is accounted for in the same way as a 100% stock dividend. 
B)  Increases the number of outstanding shares of common stock, but par value per share remains the same as before the split. 
C)  Is recorded by transferring the par value of additional shares from retained earnings to the common stock account. 
D)  Should logically cause the market price per share to drop by approximately 50%. 
A)  Is accounted for in the same way as a 100% stock dividend. 
B)  Increases the number of outstanding shares of common stock, but par value per share remains the same as before the split. 
C)  Is recorded by transferring the par value of additional shares from retained earnings to the common stock account. 
D)  Should logically cause the market price per share to drop by approximately 50%.

Question 18

Supervox Corporation declared a 3-for-2 common stock split, but this transaction was erroneously recorded as a 50% common stock dividend. As a result:

Accepted Answer

A)  Retained earnings is understated. 
B)  The total dollar amount of stockholders' equity is overstated. 
C)  The corporate records do not show the correct number of shares of common stock outstanding. 
D)  The common stock account is understated. 
A)  Retained earnings is understated. 
B)  The total dollar amount of stockholders' equity is overstated. 
C)  The corporate records do not show the correct number of shares of common stock outstanding. 
D)  The common stock account is understated.

Question 19

According to the Sarbanes-Oxley Act, lying to an external auditor can create a criminal penalty as well as a civil penalty.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following items would be included in the discontinued operations section of the income statement?

Accepted Answer

A)  Income or loss from operating the segment prior to its disposal. 
B)  The gain or loss on disposal of the segment. 
C)  Both the income or loss from operating the segment prior to its disposal, and the gain or loss on disposal of the segment. 
D)  Only losses and not gains on the disposal of a segment. 
A)  Income or loss from operating the segment prior to its disposal. 
B)  The gain or loss on disposal of the segment. 
C)  Both the income or loss from operating the segment prior to its disposal, and the gain or loss on disposal of the segment. 
D)  Only losses and not gains on the disposal of a segment.

Exam 12: Income and Changes in Retained Earnings

Of the items listed, which would appear closest to the bottom of the income statement?

Prior period adjustments are shown in the financial statements by adjusting the beginning balance of retained earnings in the statement of retained earnings.

Comprehensive income is a component of net income.

The statement of retained earnings:

Earnings per share is equal to net income applicable to common stock, divided by the weighted number of common shares outstanding.

Refer to the information above. What was the original cost of the treasury stock to Caesar Corporation?

Which of the following would have no effect on Retained Earnings?

The price earnings ratio is based on expected future earnings, while the earnings per share ratio is based on historical earnings.

In determining earnings per share when a preferred stock has dividends in arrears, only the current year's dividend is deducted to arrive at earnings per share.

A statement of stockholders' equity discloses each of the following except:

A 2-for-1 stock split:

Supervox Corporation declared a 3-for-2 common stock split, but this transaction was erroneously recorded as a 50% common stock dividend. As a result:

According to the Sarbanes-Oxley Act, lying to an external auditor can create a criminal penalty as well as a civil penalty.

Which of the following items would be included in the discontinued operations section of the income statement?

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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