Question 1

Comprehensive income represents

Accepted Answer

A) net income plus "other comprehensive income" 
B) net income less dividends paid 
C) retained earnings plus net income 
D) retained earnings plus "other comprehensive income"

Question 2

Reporting diluted earnings per share is required for which type of corporate capital structure?

Accepted Answer

A) simple 
B) complex 
C) diluted 
D) primary

Question 3

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?

Accepted Answer

A) at the beginning of the earliest comparative period for which earnings per share information is presented 
B) at the end of the earliest comparative period for which earnings per share information is presented 
C) at the beginning of the year declared 
D) as of the date of declaration

Question 4

On January 1, Roberts reported total stockholders' equity of $1, 300.During the year, $50 of dividends were declared and paid, donated land with a donor book value of $14 and a current fair value of $38 was received, additional common stock was issued for $300, and treasury stock was acquired for $22.The reported total stockholders' equity at December 31 was $1, 406.What was the reported net income or loss for the year?

Accepted Answer

A) $160 net income 
B) $204 net loss 
C) $160 net loss 
D) $228 net income 
E) none of these

Question 5

Rhonda Company had 40, 000 shares of common stock outstanding during 2010 and compensatory stock options to purchase 5, 000 shares of common stock at $10 a share plus a $3 a share unrecognized compensation cost (net of tax).The average market price is $20 a share.The company also had 7% convertible preferred stock on which dividends of $9, 000 were declared.Each preferred share is convertible into 6, 000 common shares.Rhonda's after-tax net income was $88, 000, and the tax rate was 40%.
Required:
Compute 2010 diluted earnings per share for Rhonda Company.

Accepted Answer

The answer of Rhonda Company had 40, 000 shares of...

Question 6

Differences exist between IFRS and GAAP in the reporting of EPS.Which of the following areas is not an area of difference?

Accepted Answer

A) adjustment in options calculations for unrecognized compensation cost 
B) treatment of unvested contingently issued shares 
C) treatment of dividends in arrears for convertible preferred stock 
D) treatment of contracts that may be settled in shares or for cash

Question 7

For which one of the following components is earnings per share information required to be presented on the income statement?

Accepted Answer

A) discontinued operations 
B) extraordinary items 
C) income from continuing operations 
D) cumulative effect of a change in accounting principle

Question 8

On January 1, a corporation had 60, 000 shares of common stock outstanding.On March 1, the company reacquired 12, 000 shares, and it declared a 10% stock dividend on October 1.The denominator in the earnings per share calculation would be

Accepted Answer

A) 44, 200 
B) 40, 800 
C) 55, 000 
D) 60, 000

Question 9

How will a company's working capital and net income be affected by the recording of a cash dividend on the declaration date? (Assume the dividend is paid on a later date.) $\begin{array}{lll}
& \text {Working Capital}& \text {Net Income}\ 
\text { I. } & \text { decrease } & \text { decrease } \
\text { II. } & \text { decrease } & \text { no effect }\
\text { III. } &  \text { no effect } &  \text { no effect }\
 \text { IV. }&  \text { no effect } & \text { decrease }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV

Question 10

Aster Corp.has $1, 000, 000, 6%, nonconvertible bonds due in 2015 and $1, 500, 000, 3%, convertible bonds due in 2012.The basic earnings per share is $1.25 and the diluted earnings per share is $1.18.Based upon this information, Aster must disclose

Accepted Answer

A) basic earnings per share because the convertible bonds are not dilutive 
B) basic earnings per share and dilutive earnings per share because the convertible bonds are dilutive 
C) basic earnings per share, and the convertible bonds must be disclosed in the stockholders' equity section of the balance sheet 
D) basic earnings per share and dilutive earnings per share, and the convertible bonds must be disclosed in the stockholders' equity section of the balance sheet

Question 11

Which of the following items would not be included in a basic earnings per share calculation?

Accepted Answer

A) undeclared dividends on noncumulative preferred stock 
B) declared dividends on noncumulative preferred stock 
C) undeclared dividends on cumulative preferred stock 
D) declared dividends on cumulative preferred stock

Question 12

Exhibit 17-1 The Zoeller Corporation's stockholders' equity accounts have the following balances as of December 31, 2010:
$\begin{array}{lc}
\text { Common stock, } \$ 10 \text { par }(30,000 \text { sharesissued }\
\text { and outstanding) } & \$ 300,000 \
\text { Additional paid-in capital } & 2,000,000 \
\text { Retained earnings } & \$ 5,700,000 \
\text { Total stockholder's equity } & \$ 8,000,000
\end{array}$
 
-Refer to Exhibit 17-1.On January 2, 2011, the board of directors of Zoeller declared a 30% stock dividend to be distributed on January 31, 2011.The market price per share of Zoeller's common stock was $30 on January 2 and $32 on January 31.As a result of this stock dividend, the retained earnings account should be decreased by

Accepted Answer

A) $ 90, 000 
B) $270, 000 
C) $288, 000 
D) zero; only a memorandum entry is required

Question 13

How will a company's retained earnings and total stockholders' equity be affected by the recording of the declaration of a stock dividend? (Assume the stock dividend is distributed at a later date.) $\begin{array}{lll}
& \text {  Retained Earnings }& \text { Total Stockholders Equity}\ 
 \text { I. } & \text { decrease } & \text { decrease } \
\text { II. } & \text { decrease } & \text { no effect } \
\text { III. } & \text { no effect } & \text { no effect }\
\text { III. } & \text { no effect } & \text { decrease }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV

Question 14

In calculating earnings per share, a company uses the treasury stock method when

Accepted Answer

A) it needs to value the cash received for a convertible bond 
B) it recognizes the assumed impact of exercising outstanding warrants 
C) it develops a methodology to handle the premium paid on exercised stock options 
D) it needs to value treasury stock repurchased during the year

Question 15

The Carol Company has issued 10%, fully participating, cumulative preferred stock with a total par value of $600, 000 and common stock with a total par value of $900, 000.No dividends are in arrears.How much cash will be paid to the preferred stockholders and the common stockholders, respectively, if cash dividends of $141, 000 are distributed?

Accepted Answer

A) $ 60, 000 and $90, 000 
B) $114, 000 and $27, 000 
C) $ 51, 000 and $90, 000 
D) $ 60, 000 and $81, 000

Question 16

How may a corporation report its types of comprehensive income?

Accepted Answer

A) It may report the amount of accumulated other comprehensive income for each item as part of stockholders' equity. 
B) It may report the total amount of accumulated other comprehensive income for all the items as part of stockholders' equity. 
C) It may make footnote disclosures of totals only. 
D) It may report the amount of accumulated other comprehensive income for each item or in total as part of stockholders' equity.

Question 17

Dave Company had 30, 000 shares of common stock outstanding on January 1 and issued an additional 9, 000 on August 1 of 2010.The company also has $100, 000 of 8% convertible bonds outstanding during the year.Each $1, 000 bond is convertible into 5 shares of common stock.Dave had after-tax net income for the year of $160, 000, and the tax rate was 30%.
Required:
Compute the appropriate earnings per share amount(s)to be reported on Dave Company's 2010 income statement, and explain your answer.

Accepted Answer

The answer of Dave Company had 30, 000 shares of...

Question 18

Eric, Inc.began 2011 with 25, 000 common shares outstanding and issued a 20% stock dividend on August 1.The company issued 6, 000 shares on December 1.Eric also has 8, 000 shares of 8%, $20 par, cumulative preferred stock outstanding on which no dividends have been paid during either 2010 or 2011.Net income for 2011 was $165, 060.
Required:
Compute Eric, Inc.'s basic earnings per share for 2011.

Accepted Answer

The answer of Eric, Inc.began 2011 with 25, 000 common...

Question 19

On January 1, 2010, 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 2010 was

Accepted Answer

A) ($33.72) 
B) ($30.24) 
C) ($22.10) 
D) ($18.60)

Question 20

During 2010, Sanchez, Inc.had the following convertible securities outstanding:
 A. $ \quad \$ 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 \% $ conventible bonds. Each $ \$ 1,000 $ bond is convertible into 45 shares of conmon stock
C. $ \$ 100,000 $ of $ 8 \% $ convertible boncks. 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.
 Sanchez, Inc.has an income tax rate of 40%.
Required:

Accepted Answer

The answer of During 2010, Sanchez, Inc.had the following convertible...

Exam 17: Earnings Per Share and Retained Earnings