Question 1

The Stansbury Company has issued 10%, partially participating, cumulative preferred stock with a total par value of $200,000 and common stock with a total par value of $800,000. The preferred stock participates up to 15% of its par value. No dividends are in arrears. How much cash will be paid to the preferred stockholders and the common stockholders, respectively, if cash dividends of $160,000 are distributed?

Accepted Answer

A)  $50,000 and $110,000 
B)  $20,000 and $140,000 
C)  $30,000 and $130,000 
D)  $32,000 and $128,000

Question 2

On January 1, Christopher's 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 3

When the basic and diluted earnings per share amounts are disclosed on the income statement, additional disclosures are made in the footnotes.
Required:
Describe the information contained in the footnotes concerning the basic and diluted earnings per share.

Accepted Answer

The answer of When the basic and diluted earnings per...

Question 4

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.)

Accepted Answer

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

Question 5

Murphy Co. had 60,000 common shares outstanding on January 1, 2014. The company sold an additional 4,500 shares on March 1, issued a 3-for-1 stock split on September 1, and reacquired 3,600 shares on December 1. The company also declared, but has not paid, a dividend on its 10,000 shares of 5%, $10 par, noncumulative preferred stock. The net loss for the year was $33,190.
Required:
Compute Murphy Co.'s basic earnings per share for 2014.

Accepted Answer

The answer of Murphy Co. had 60,000 common shares outstanding...

Question 6

Under the if-converted method, the impact of various convertible securities on the diluted earnings per share calculation are ranked from

Accepted Answer

A)  the least dilutive impact to the most dilutivet impact 
B)  the most dilutive impact to the least dilutive impact 
C)  the least number of assumed shares issued to the most 
D)  the most number of assumed shares issued to the least

Question 7

IFRS and GAAP are similar in regard to computing earnings per share components. However, the calculation of the impact from the exercise of options differs.
Required: 
a.Describe the difference in treatment of unrecognized compensation cost relating to options in the calculation of EPS.
b.Explain why the IFRS approach will systematically result in lower reported diluted EPS.

Accepted Answer

The answer of IFRS and GAAP are similar in regard...

Question 8

Interest expense on convertible bonds that are dilutive is included in the numerator of the diluted earnings per share calculation at an amount equal to

Accepted Answer

A)  interest expense 
B)  interest payable 
C)  interest expense times the tax rate 
D)  interest expense times one minus the tax rate

Question 9

All of the following types of dividends will result in an increase in liabilities as a result of recording the declaration of a dividend except a (Assume the dividends are paid or distributed on a later date.)

Accepted Answer

A)  cash dividend 
B)  property dividend 
C)  scrip dividend 
D)  stock dividend

Question 10

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

Accepted Answer

A)  simple 
B)  complex 
C)  primary 
D)  both simple and complex

Question 11

A simple capital structure consists of

Accepted Answer

A)  only preferred stock 
B)  common stock outstanding and possibly nonconvertible preferred stock 
C)  common stock and common stock options only 
D)  preferred stock and preferred stock options

Question 12

Which one of the following indicators is intended to show the potential impacts of possible future events on a corporation's performance?

Accepted Answer

A)  basic earnings per share 
B)  dividend yield 
C)  diluted earnings per share 
D)  price/earnings ratio

Question 13

Major Corporation had 50,000 shares of common stock outstanding during 2014 with the following characteristics:  
The company also has compensatory share options to purchase 5,000 shares of common stock at $40 a share during the year. The unrecognized compensation cost (net of tax) related to these share options is $5 per share. Net income for the year was $60,600.
Required:
Compute the basic and diluted earnings per share for Major Corporation.

Accepted Answer

The answer of Major Corporation had 50,000 shares of common...

Question 14

When a corporation has a loss from continuing operations, the basic earnings per share is

Accepted Answer

A)  greater than the diluted earnings per share 
B)  less than the diluted earnings per share 
C)  equal to the diluted earnings per share 
D)  not reported

Question 15

On January 1, 2014, Kiper Corporation had 12,000 shares of common stock outstanding. Kiper reacquired 1,000 shares on May 1, and issued another 5,000 shares on September 1. The company also has 10,000 shares of $20 par, 10%, noncumulative preferred stock outstanding on which no dividends have been declared during the last two years. The company had a $28,360 loss for the year. The earnings per share for the year is

Accepted Answer

A)  ($5.03) 
B)  ($2.95) 
C)  ($5.26) 
D)  ($2.18)

Question 16

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 17

Which statement best represents the relationship between date of declaration, date of record and ex-dividend date, and date of payment, for a cash dividend.

Accepted Answer

A)  The date of payment results in the biggest decrease in the current ratio. 
B)  The date of record establishes the amount to be received. 
C)  The ex-dividend date establishes the decrease to cash. 
D)  The date of declaration establishes the increase to liabilities.

Question 18

During 2014, Stewart, Inc. had the following convertible securities outstanding: 
A.$220,000 of 10%, $100 par, cumulative 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, cumulative preferred stock. Each share is convertible into 5 shares of common stock.
Stewart, Inc. has an income tax rate of 40%. Its reported net income for 2014 was $88,000, and it had 22,000 shares of common stock outstanding all year.
Required:
Calculate basic and diluted earnings per share for Stewart.

Accepted Answer

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

Question 19

A convertible security may have the appearance of being individually dilutive but in fact be antidilutive when viewed with combinations of other convertible securities.

Accepted Answer

A) True 
 B)False

Question 20

Given the following convertible securities, determine the appropriate ranking to determine their impact on diluted earnings per share calculations: 
(1)10% convertible preferred stock with dividends of $7,000 declared during the year and shares convertible into 2,500 common shares
(2)6% convertible bonds with interest expense (net of taxes) of $8,000 and convertible into 3,500 common shares
(3)8% convertible bonds with interest expense (net of taxes) of $5,000 and convertible into 1,600 common shares

Accepted Answer

A)  1, 2, 3 
B)  3, 1, 2 
C)  2, 1, 3 
D)  1, 3, 2

Exam 16: Retained Earnings and Earnings Per Share

When the basic and diluted earnings per share amounts are disclosed on the income statement, additional disclosures are made in the footnotes. Required: Describe the information contained in the footnotes concerning the basic and diluted earnings per share.