Question 1

When a company reports both diluted earnings per share and basic earnings per share:

Accepted Answer

A)  Basic EPS would be greater than fully diluted EPS. 
B)  Basic EPS would be less than fully diluted EPS. 
C)  Basic EPS may be either greater or less than fully diluted EPS. 
D)  Both should never be shown - only one would be reported. 
A)  Basic EPS would be greater than fully diluted EPS. 
B)  Basic EPS would be less than fully diluted EPS. 
C)  Basic EPS may be either greater or less than fully diluted EPS. 
D)  Both should never be shown - only one would be reported.

Question 2

Stockholders' equity
The stockholders' equity section of the balance sheet of Creative Corporation at December 31, 2009, appears as follows:
 
Answer the following questions based on the stockholders' equity section given above. The company had no treasury stock transactions before 2009.
(a) What is the average price per share of preferred stock?
(b) How many shares of common stock are outstanding?
(c) A small stock dividend of 5,000 shares was declared and distributed during 2009. What was the market price per share on the date of declaration?
(d) If Creative Corporation had reacquired 7,000 shares of treasury stock early in 2009, compute the price per share for which the reissued treasury stock was sold.
(e) Assume all remaining treasury stock is reissued at a price of $12 per share in January of 2010.
Give the journal entry to record this

Accepted Answer

(a) ($800,000 + $160,000) 8,000 shares -

Question 3

Earnings per share figures are shown in the income statement:

Accepted Answer

A)  For income before extraordinary items and for income from continuing operations, as well as for net income. 
B)  For common stock as well as for preferred stock. 
C)  For all publicly owned, as well as for all privately held, corporations. 
D)  As an optional disclosure for all corporations, and may be omitted completely or disclosed in a footnote at the option of the issuing corporation. 
A)  For income before extraordinary items and for income from continuing operations, as well as for net income. 
B)  For common stock as well as for preferred stock. 
C)  For all publicly owned, as well as for all privately held, corporations. 
D)  As an optional disclosure for all corporations, and may be omitted completely or disclosed in a footnote at the option of the issuing corporation.

Question 4

Accounting changes and prior period adjustment
Prior period adjustments affect the income of past accounting periods. Explain how prior period adjustments are shown in the financial statements.

Accepted Answer

A prior period adjustment represents a c

Question 5

Doogle Corporation sold a segment of its operations in 2009 and suffered an extraordinary loss in 2010. Which of the following would be the most useful in attempting to predict Doogle's performance for 2011?

Accepted Answer

A)  Doogle's income from continuing operations in 2009 and 2010. 
B)  Doogle's net income in 2009 and 2010. 
C)  Doogle's total assets at the end of 2010. 
D)  Doogle's retained earnings at the end of 2010. 
A)  Doogle's income from continuing operations in 2009 and 2010. 
B)  Doogle's net income in 2009 and 2010. 
C)  Doogle's total assets at the end of 2010. 
D)  Doogle's retained earnings at the end of 2010.

Question 6

Stock dividend-effect on book value
Olympic Corporation has 75,000 shares of $1 par value stock outstanding. The largest single stockholder is Lou Cheng, who owns 6,000 shares. On December 31, the total assets of the company amount to $4,360,000 and total liabilities to $2,230,000. On that date, the board of directors declared a stock dividend of one new share for each five shares outstanding. Compute the following:

Accepted Answer

(a) $28.40 per share

Question 7

Large stock dividends tend to keep stock prices down.

Accepted Answer

A) True 
 B)False

Question 8

The price-earnings ratio is the:

Accepted Answer

A)  Book value of a share of common stock divided by EPS. 
B)  Market price of a share of common stock divided by EPS. 
C)  Par value of a share of common stock divided by EPS. 
D)  Market price divided by book value of a share of stock. 
A)  Book value of a share of common stock divided by EPS. 
B)  Market price of a share of common stock divided by EPS. 
C)  Par value of a share of common stock divided by EPS. 
D)  Market price divided by book value of a share of stock.

Question 9

Baron Corporation was authorized by its charter to issue 80,000 shares of 12%, $100 par cumulative preferred stock and 200,000 shares of $1 par value common stock. In its first year of operations, Baron had the following transactions.
(1) Sold 50,000 shares of common stock for $300,000 on January 1.
(2) Sold 3,000 shares of preferred stock for $360,000 on January 1.
(3) Earned $185,000 for the sale of their merchandise of which $135,000 was on credit.
(4) Had expenses of $122,500 in connection with selling the merchandise. All expenses were paid in cash.
(5) Purchased 5,000 shares of outstanding common stock for $8.00 per share for the treasury.
(6) Declared a dividend of $.20 per share of common stock and for the amount due the preferred stock.
(7) Paid the required dividends.
Required:
(a). Prepare the necessary journal entries.
(b). Prepare the stockholders' equity section of the balance sheet.

Accepted Answer

The answer of Baron Corporation was authorized by its charter...

Question 10

During the year 2011, Torino Corporation suffered a $1,200,000 loss when its factory was severely damaged in an earthquake. Assuming the corporate income tax rate is 30%, what amount will Torino report as an extraordinary loss on its income statement for 2010? Assume earthquakes are not common in this area.

Accepted Answer

A)  $1,200,000. 
B)  $840,000. 
C)  $360,000. 
D)  Nothing, since this does not qualify as an extraordinary item. 
A)  $1,200,000. 
B)  $840,000. 
C)  $360,000. 
D)  Nothing, since this does not qualify as an extraordinary item.

Question 11

To receive the next cash dividend, an investor must purchase the stock before the:

Accepted Answer

A)  Dividend declaration date. 
B)  Ex-dividend date. 
C)  Date of record. 
D)  Payment date announced by the board of directors. 
A)  Dividend declaration date. 
B)  Ex-dividend date. 
C)  Date of record. 
D)  Payment date announced by the board of directors.

Question 12

If a company presents both the basic and diluted earnings per share, the price/earnings ratio is based on:

Accepted Answer

A)  The basic figure. 
B)  The diluted figure. 
C)  The average of the basic and diluted figures. 
D)  A combination of the basic and diluted figures. 
A)  The basic figure. 
B)  The diluted figure. 
C)  The average of the basic and diluted figures. 
D)  A combination of the basic and diluted figures.

Question 13

In computing earnings per share, the number of shares used is:

Accepted Answer

A)  The year-end number of shares outstanding. 
B)  The beginning of the year number of shares outstanding. 
C)  The average of the beginning and the year-end number of shares outstanding. 
D)  The weighted average of shares outstanding for the year. 
A)  The year-end number of shares outstanding. 
B)  The beginning of the year number of shares outstanding. 
C)  The average of the beginning and the year-end number of shares outstanding. 
D)  The weighted average of shares outstanding for the year.

Question 14

Stock dividend and treasury stock
At the beginning of the current year, King Cole, Inc. had 300,000 shares of capital stock outstanding and total stockholders' equity of $1,200,000. During the year, the company earned net income of $325,000, declared cash dividends of $150,000, distributed a 5% stock dividend of 15,000 shares when the market price of the stock was $16 per share, and purchased 3,000 shares of treasury stock at a cost of $13 per share. Compute the following at the end of the current year:
(a) Total stockholders' equity:
(b) Number of shares of stock outstanding:
(c) Book value per share:

Accepted Answer

(a)Total stockholders' equity:
$1,200,00

Question 15

Refer to the information above. What was the average issue price per share of preferred stock?

Accepted Answer

A)  $100.00. 
B)  $125.71. 
C)  $175.50. 
D)  $300.00. 
A)  $100.00. 
B)  $125.71. 
C)  $175.50. 
D)  $300.00.

Question 16

Stock dividends and stock splits do not cause a change in the total amount of stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 17

An extraordinary item appears on the income statement before the section on discontinued operations.

Accepted Answer

A) True 
 B)False

Question 18

A company failed to make an adjusting entry in the prior year to accrue earned revenue. To correct this they should:

Accepted Answer

A)  Correct last year's statement by increasing net income. 
B)  Correct this year's statements with a prior period adjustment increasing beginning retained earnings. 
C)  Correct this year's statements with a prior period adjustment decreasing beginning retained earnings. 
D)  Correct this year's statements with a prior period adjustment increasing ending retained earnings. 
A)  Correct last year's statement by increasing net income. 
B)  Correct this year's statements with a prior period adjustment increasing beginning retained earnings. 
C)  Correct this year's statements with a prior period adjustment decreasing beginning retained earnings. 
D)  Correct this year's statements with a prior period adjustment increasing ending retained earnings.

Question 19

The statement of stockholders' equity discloses the amount of cash dividends as well as stock dividends declared during the current year.

Accepted Answer

A) True 
 B)False

Question 20

A prior period adjustment is a correction made to:

Accepted Answer

A)  Retained earnings of the beginning of the period. 
B)  Retained earnings at the end of the period. 
C)  Net income of the current year. 
D)  Only to last years' financial statements. 
A)  Retained earnings of the beginning of the period. 
B)  Retained earnings at the end of the period. 
C)  Net income of the current year. 
D)  Only to last years' financial statements.

Exam 12: Income and Changes in Retained Earnings

When a company reports both diluted earnings per share and basic earnings per share:

Earnings per share figures are shown in the income statement:

Accounting changes and prior period adjustment Prior period adjustments affect the income of past accounting periods. Explain how prior period adjustments are shown in the financial statements.

Doogle Corporation sold a segment of its operations in 2009 and suffered an extraordinary loss in 2010. Which of the following would be the most useful in attempting to predict Doogle's performance for 2011?

Large stock dividends tend to keep stock prices down.

The price-earnings ratio is the:

To receive the next cash dividend, an investor must purchase the stock before the:

If a company presents both the basic and diluted earnings per share, the price/earnings ratio is based on:

In computing earnings per share, the number of shares used is:

Refer to the information above. What was the average issue price per share of preferred stock?

Stock dividends and stock splits do not cause a change in the total amount of stockholders' equity.

An extraordinary item appears on the income statement before the section on discontinued operations.

A company failed to make an adjusting entry in the prior year to accrue earned revenue. To correct this they should:

The statement of stockholders' equity discloses the amount of cash dividends as well as stock dividends declared during the current year.

A prior period adjustment is a correction made to:

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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