Exam 12: Income and Changes in Retained Earnings

Corona Corporation's financial statements for the current year include the following: On the basis of this information, net income for the current year is:

"Discontinued operations" is an example of an extraordinary item.

Which of the following statistics is generally computed for both common and preferred stock?

The amount transferred out of retained earnings when a 4% stock dividend is declared is equal to the prevailing market value per share times the number of dividend shares to be distributed.

The FASB has not compiled a comprehensive list of what is considered to be an extraordinary item, thus the determination is a matter of judgment.

Stock splits are always in a 2 for 1 ratio.

Earnings per share-basic and diluted Greenwich Corporation had net income of $1,712,500 in 2009. The company had 300,000 shares of $4 par value common stock and 25,000 shares of 8%, $100 par, convertible preferred stock outstanding throughout the year. Each share of preferred stock is convertible into four shares of common stock. Compute the following for 2009:

Family Fashions Corporation discontinued Kid-Choice, its entire line of children's clothing, in November of 2009. Prior to the disposal, Kid-Choice generated a loss of $600,000 (net of tax) for the period from January through the sale date. Because of the value of the real estate and machinery, there was a gain of $850,000 (net of tax) on the actual sale. How should this situation be reported in the financial statements of Family Fashions for 2009?

A prior period adjustment to retained earnings is made when a discovery of a material error was made to prior years' income.

Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a prior period adjustment, and an extraordinary gain. If Execucomp's income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement?

Diluted earnings per share are shown to alert investors that earnings per share could be increased by the effects of conversions of securities into common stock.

Stock dividends What is the effect of a stock dividend?

Refer to the information above. A small stock dividend of 1,000 shares was declared and distributed during 2009. What was the market price per share on the date of declaration?

During the year 2009, Tosco Corporation suffered an $800,000 loss when its factory was destroyed in a flood. Assuming the corporate income tax rate is 36%, what amount will Tosco report as an extraordinary loss on its income statement for 2009? Assume floods are not common in this area.

MRB Company purchased 1,000 shares of its own outstanding $12 par value common stock for $16 per share and then sold 400 shares six months later for $19 a share. Prepare the journal entries for the purchase of the stock and for the sale.

Extraordinary items are found on the income statement:

On January 1, 2010, Alice Corporation had 20,000 shares of $6 par value common stock and 10,000 shares of 8%, $100 par value convertible preferred stock outstanding. The preferred shares carried a 3 for 1 conversion privilege. As of December 31, 2010, none of the preferred shares had been converted. What number of shares must Alice use in computing diluted earnings per share at December 31, 2010?

Discontinued operations The operations of Global Entertainment, Inc., for the current year are summarized below: Global Entertainment had 400,000 shares of capital stock outstanding. Complete the following condensed income statement for the year, including the appropriate earnings per share figures.

The statement of stockholders' equity:

Comprehensive income may be presented in a statement with net income, in a separate statement, or as part of stockholders' equity.