Exam 18: Additional Reporting Issues

Accounting alternatives diminish the comparability of financial information between periods and between companies.

On January 1, 2006, Foley Corporation acquired machinery at a cost of $250,000. Foley adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2009, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense to be recorded for the machinery in 2009 is (round to the nearest dollar)

Which of the following is a condition in which retrospective application is not impracticable?

When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the

Antidilutive securities are securities which upon their conversion or exercise decrease earnings per share (or increase the loss per share).

The FASB takes the position that companies should retrospectively apply the indirect effects of a change in accounting principle.

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would

The treasury stock method will increase the number of shares outstanding whenever the exercise price of an option or warrant is below the market price of the common stock.

A company should report per share amounts for income before extraordinary items, but not for income from continuing operations.

Eaton Company began operations on January 1, 2008, and uses the FIFO method in costing its raw materials inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Based on the above information, a change to the LIFO method in 2009 would result in net income for 2009 of

According to the FASB, which approach is required for reporting changes in an accounting principle?

Foley Company has 1,800,000 shares of common stock outstanding on December 31, 2007. An additional 150,000 shares of common stock were issued on July 1, 2008, and 300,000 more on October 1, 2008. On April 1, 2008, Foley issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2008. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2008?

On January 1, 2005, Dent Co. purchased a machine for $792,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2008, Dent determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $72,000. An accounting change was made in 2008 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2008 of

Royce Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2007. In connection with the acquisition of a subsidiary company in June 2006, Royce is required to issue 100,000 additional shares of its common stock on July 1, 2008, to the former owners of the subsidiary. Royce paid $200,000 in preferred stock dividends in 2007, and reported net income of $3,400,000 for the year. Royce's diluted earnings per share for 2007 should be

Companies account for a change in depreciation methods as a change in accounting principle.

Carey Company purchased a machine on January 1, 2006, for $300,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2009, Carey determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made in 2009 to reflect this additional information. -Assume that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate was 30% in 2006, 2007, 2008, and 2009. What should be reported in Carey's income statement for the year ended December 31, 2009, as the cumulative effect on prior years of changing the estimated useful life of the machine?

Lemke Co. has 4,000,000 shares of common stock outstanding on December 31, 2007. An additional 200,000 shares are issued on April 1, 2008, and 480,000 more on September 1. On October 1, Lemke issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2008 is

If the previously used accounting principle was not acceptable, a change to a generally accepted accounting principle is considered a change in principle.

FASB Statement No. 16 requires that corrections of errors be handled prospectively and shown in the current operating section of the income statement in the year the correction is made.

At December 31, 2007, Agler Company had 1,200,000 shares of common stock outstanding. On September 1, 2008, an additional 400,000 shares of common stock were issued. In addition, Agler had $12,000,000 of 6% convertible bonds outstanding at December 31, 2007, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2008. The net income for the year ended December 31, 2008, was $4,500,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2008, rounded to the nearest penny?