Question 1

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

Accepted Answer

A)   zero; only a memorandum entry is required
B)   $ 50,000
C)   $172,500
D)   $187,500 C

Question 2

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

Accepted Answer

A)   realized gains or losses from sale of investments in available-for-sale securities
B)   translation adjustments from converting the financial statements of a company's foreign operations into U.S. dollars
C)   gains (losses)  on extraordinary items
D)   warranty liability adjustments B

Question 3

Basic earnings per share is computed as

Accepted Answer

A)   Net Income / Total Number of Common Shares Outstanding
B)   (Net Income - Preferred Dividends)  / Total Number of Common Shares Outstanding
C)   (Net Income - Preferred Dividends)  / Weighted-Average Number of Common Shares Outstanding
D)   Net Income / Weighted-Average Number of Common Shares Outstanding C

Question 4

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?

Accepted Answer

The answer of On January 1, 2014, Jerry Co. had...

Question 5

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 6

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

Accepted Answer

A)   restrictions on the repayment of capital
B)   reacquired shares and rights
C)   share reserved for future issuances under sales contracts
D)   capital not yet paid in

Question 7

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

Accepted Answer

A)   31,000
B)   31,333
C)   31,667
D)   33,000

Question 8

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

Accepted Answer

A)   ($33.72) 
B)   ($30.23) 
C)   ($22.10) 
D)   ($18.60)

Question 9

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

Accepted Answer

A)   a mathematical error
B)   facts of the transaction are misconstrued
C)   misapplication of accounting principles
D)   All of these choices

Question 10

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

Accepted Answer

A)   the numerator only
B)   the denominator only
C)   both the numerator and denominator
D)   neither the numerator nor the denominator

Question 11

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.

Accepted Answer

The answer of Graham, Inc. began 2015 with 25,000 common...

Question 12

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.

Accepted Answer

The answer of During 2014, Sanders, Inc. had the following...

Question 13

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

Accepted Answer

A)   $0.50
B)   $0.469
C)   $0.408
D)   not determinable because the bonds are not dilutive

Question 14

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)

Accepted Answer

A)   $16.26
B)   $14.32
C)   $11.11
D)   $10.83

Question 15

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

Accepted Answer

A)   26,950
B)   28,900
C)   29,925
D)   41,400

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

What three items rarely affect retained earnings?

Accepted Answer

The answer of What three items rarely affect retained earnings?...

Question 19

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

Accepted Answer

A)   property dividend
B)   stock dividend
C)   capital dividend
D)   liquidating dividend

Question 20

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?

Accepted Answer

A)   Retained Earnings  \quad \quad  15,000 Interest Payable \quad \quad \quad   15,000Income Tax Refund Receivable (or Payable)   \quad  15,000Retained Earnings  \quad \quad \quad  15,000
B)   Retained Earnings  \quad \quad  15,000 Interest Payable  \quad \quad \quad  15,000Income Tax Refund Receivable (or Payable)   \quad  5,250Retained Earnings  \quad \quad  5,250
C)   Retained Earnings  \quad \quad \quad  9,750 Interest Payable  \quad \quad \quad  9,750Income Tax Refund Receivable (or Payable)   \quad \quad  5,250Retained Earnings  \quad \quad  5,250
D)   Retained Earnings  \quad \quad  5,250 Interest Payable  \quad \quad \quad  5,250Income Tax Refund Receivable (or Payable)  \quad \quad   9,750Retained Earnings  \quad \quad \quad \quad  9,750

Exam 16: Retained Earnings and Earnings Per Share

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