Exam 12: Profit and Changes in Retained Earnings

Recent rulings by the SEC now require all corporations to prepare an expanded version of the Statement of Changes in Equity showing all equity accounts and their changes for the last three years.

Of the items listed, which would appear closest to the bottom of the income statement?

The Price Earnings Ratio is the

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

A retrospective restatement appears in the financial statements of the current year when:

Equity transactions-journal entries A partial list of the ledger accounts of Soundview Corporation is shown below, followed by a list of transactions. Indicate the accounts that would be debited and credited in recording each transaction by placing the appropriate account number(s) in the space provided. If no journal entry is required for a particular transaction, use "None." 1 Cash 30 Retaired Earnings 10 Dividends Payable 31 Dividends 20 Ordirary Share, \ 1 par 45 All Reverue and Gairs 21 Share Prerrium 50 All Expenses and Losses 24 Stock Dividend to Be Distributed 25 Treasury Share \begin{array}{llr}\text { Transactions } &\text { Account(s) } & \text { Account(s } \\&\text { Debited } & \text { Credited } \\ \text {Example Issued ordinary shares for cash at a price above par. } &1 & 20,21\\ \text { (a) Declared a 10\% stock dividend. Market price per share is } &\\ \text { higher than par. } &\\ \text { (b) Declared a cash dividend on ordinary share } &\\ \text {(c) Issue shares pursuant to stock dividend declared in a, above. } &\\ \text { (d) The dividend declared in \mathrm{b} , above, is paid. } &\\ \text { (e) Reacquired shares of Sound view ordinary shares on the open market. } &\\ \text { (f) Reissued some of the shares reacquired in \( e \), above, at a} &\\ \text { price higher than cost. } &\\ \text { (g) Declared and distributed a 100\% stock dividend. } &\\ \text { Market price per share is higher than par value } &\\ \text { (h) Declared and distributed a 2-for-1 share split. Market price } &\\ \text { per share is higher than par value.} &\\\end{array}

When a small (under 10%) stock dividend is declared the market value of the share is transferred from Retained Earnings into other shareholder equity accounts.

Shareholders' equity The shareholders' equity section of the balance sheet of Creative Corporation at December 31, 2009, appears as follows: Shareholders'Equity 5\% ron-cumulative preferenoe share, \1 00 par; 10,000 shares authorized, ?shares issued 800,000 Orlinary share, \3 par, 100,000 shares authorized, 50,000 shares issued, of which ?? are held in treasuy 150,000 Share preminim From issuance of plefereme share 160,000 From issuance of ordinary share 550,000 From treasuy share trancaction 6,000 From ordinary share dividends 130,000 Total issued and fully paid capital \1 ,796,000 Retained eaming: ( \ 40,000 equal to cost of treasuy share is not available for dividends) 750,000 \2 ,546,000 Less: treasuy share (at cost: 5,000 ordinaryshares) (40,000) Total hhareholders' equity \2 ,506,000 Answer the following questions based on the shareholders' equity section given above. The company had no treasury share transactions before 2007. (a) What is the average price per share of preference share? (b) How many shares of ordinary share are outstanding? (c) A small stock dividend of 5,000 shares was declared and distributed during 2007. What was the market price per share on the date of declaration? (d) If Creative Corporation had reacquired 7,000 shares of treasury share early in 2007, compute the price per share for which the reissued treasury share was sold. (e) Assume all remaining treasury share is reissued at a price of $12 per share in January of 2008. Give the journal entry to record this transaction.

The amount of earnings per share is usually computed:

Which of the following qualify as an extraordinary item?

Dividends are first recorded and retained earnings are reduced on:

Income statement and earnings per share Shown below is information relating to operations of Laconia, Inc., for 2009: Contiruing operations: Sales \ 7,620,000 Cost ard experses (including income taxes) \ 3,750,000 Other data: Current-year profit generated by seprnent of the business discontinued in April (net of income taxes) \ 420,000 Gain on disposal of discontirued segment (net of income taxes) \ 108,000 Retrospective restatement (decrease in prior years profit net of tax benefit) \ 168,000 Extraordirary loss (net of incorne tax benefit) \ 96,000 Cash dividends declared ( \1 .5per share) \ 150,000 In the space provided, complete the income statement for Laconia, Inc., including earnings-per-share figures. Laconia has 100,000 shares of a single class of ordinary share outstanding throughout the year. LACONIA, INC. Condensed Income Statement For the Year Ended December 31, 2009

Extraordinary items and the results of discontinued operations are shown in the income statement net of any related income tax effects.

Where on the income statement are extraordinary items found ?

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

Special sections in an income statement What is the purpose of arranging an income statement to show subtotals for Profit from Continuing Operations and for Profit before Extraordinary Items?

A statement of changes in equity discloses each of the following except:

An example of an extraordinary gain or loss is:

In determining earnings per share when a preference share has dividends in arrears, only the current year's dividend is deducted to arrive at earnings per share.

When a stock dividend is declared, total shareholders' equity will: