Question 1

A retrospective restatement to retained earnings is made when a discovery of a material error was made to prior years' profit.

Accepted Answer

A) True 
 B)False

Question 2

In order to receive a dividend, a shareholder must have owned the shares as of the declaration date.

Accepted Answer

A) True 
 B)False

Question 3

Stock dividend-effect on book value
Olympic Corporation has 75,000 shares of $1 par value share outstanding. The largest single shareholder is Lou Cheng, who owns 6,000 shares. On December 31, the total assets of the company amount to $4,360,000 and total liabilities to $2,230,000. On that date, the board of directors declared a stock dividend of one new share for each five shares outstanding. Compute the following:
 (a) Book value per share before the stock dividend $ $\underline{\quad\quad}$per share
(b) Bodk value per share after stock dividend $\$$$\underline{\quad\quad}$per share
(c) Total book value of Lou Cheng 's shareholdings per share before the stock dividend $\$$$\underline{\quad\quad}$
(d) Total book value of Lou Cheng 's shareholdings after the stock dividend $\$$$\underline{\quad\quad}$

Accepted Answer

(a) $28.40 per share
(b) $23.67 per shar

Question 4

Stock dividends and share split-journal entries
Eagle Corporation has 250,000 shares at $6 par value outstanding. Prepare journal entries in the space provided to record the following transactions during the current year:
 $$\begin{array} { | l | l | } 
\hline \text { Feb 10 } & \text { Declared a 25\% stock dividend Market price per share was } \$ 22 \
\hline \text { Mar. 15 } & \text { Issued the shares for the stock dividend declared on February 10. } \
\hline \text { June 30 } & \text { Distributed additional shares in a 2-for-1 share split Market price per share was } \$ 40 \
\hline & \text { irmmediately before the share split } \
\hline \text { Oct. 17 } & \text { Declared a 10\%/ stock dividend. Market rice per share was } \$ 24 \
\hline
\end{array}$$

Accepted Answer

None

Question 5

Which of the following items would reduce retained earnings?

Accepted Answer

A)  A ordinary share dividend. 
B)  A preference share dividend. 
C)  A cash dividend. 
D)  All three above. 
A)  A ordinary share dividend. 
B)  A preference share dividend. 
C)  A cash dividend. 
D)  All three above.

Question 6

Earnings per share is equal to profit applicable to ordinary share divided by the weighted number of ordinary shares outstanding.

Accepted Answer

A) True 
 B)False

Question 7

In an attempt to appeal to investors, a company may be tempted to overstate profit.

Accepted Answer

A) True 
 B)False

Question 8

Earnings per share-basic and diluted
Greenwich Corporation had profit of $1,712,500 in 2009. The company had 300,000 shares of $4 par value ordinary share and 25,000 shares of 8%, $100 par, convertible preference share outstanding throughout the year. Each share of preference share is convertible into four shares of ordinary share. Compute the following for 2009: (a) Basic earnings per share:$$\underline{\quad\quad}$per share.
(b) The number of shares to be used in computing diluted earnings per share.

Accepted Answer

(a) Basic earnings per share ($1,712,500

Question 9

The ordinary share of Securetech Corporation consistently sells at a market price of 20 times earnings, i.e., at a p/e ratio of 20. What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?

Accepted Answer

A)  An increase in market price of approximately 10 cents per share. 
B)  An increase in market price of approximately $2 per share. 
C)  A reduction in the p/e ratio due to the larger EPS. 
D)  Nothing, since market price reflects expectations of future earnings. 
A)  An increase in market price of approximately 10 cents per share. 
B)  An increase in market price of approximately $2 per share. 
C)  A reduction in the p/e ratio due to the larger EPS. 
D)  Nothing, since market price reflects expectations of future earnings.

Question 10

The amount of cash dividends paid to ordinary shareholders is part of the computation of earnings per share.

Accepted Answer

A) True 
 B)False

Question 11

Share splits are always in a 2 for 1 ratio.

Accepted Answer

A) True 
 B)False

Question 12

The IASB has prohibited the reporting of what is considered to be an extraordinary item.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following items would be included in comprehensive income but not reported as a component of profit?

Accepted Answer

A)  A lower-of-cost-or-market write-down of inventory. 
B)  A material loss due to natural disaster. 
C)  A gain on the fair value changes on the portfolio of available-for-sale marketable securities. 
D)  A gain on the sale of a segment of the business. 
A)  A lower-of-cost-or-market write-down of inventory. 
B)  A material loss due to natural disaster. 
C)  A gain on the fair value changes on the portfolio of available-for-sale marketable securities. 
D)  A gain on the sale of a segment of the business.

Question 14

The statement of changes in equity discloses the amount of cash dividends as well as stock dividends declared during the current year.

Accepted Answer

A) True 
 B)False

Question 15

According to the Sarbanes-Oxley Act lying to an external auditor can create a criminal penalty as well as a civil penalty.

Accepted Answer

A) True 
 B)False

Question 16

Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a retrospective restatement. If Execucomp income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement?

Accepted Answer

A)  Retrospective restatement. 
B)  Profit from continuing operations. 
C)  Loss from discontinued operations. 
D)  Extraordinary gain. 
A)  Retrospective restatement. 
B)  Profit from continuing operations. 
C)  Loss from discontinued operations. 
D)  Extraordinary gain.

Question 17

To qualify as a discontinued operation, a gain or loss must:

Accepted Answer

A)  Affect the profit of a prior period. 
B)  Be larger in amount than any other item in the income statement. 
C)  Be associated with a segment of the business that has been discontinued during the current period 
D)  Be material in amount, unusual in nature, and not expected to recur 
A)  Affect the profit of a prior period. 
B)  Be larger in amount than any other item in the income statement. 
C)  Be associated with a segment of the business that has been discontinued during the current period 
D)  Be material in amount, unusual in nature, and not expected to recur

Question 18

The purpose of developing the subtotals "Profit from Continuing Operations" in an income statement is to:

Accepted Answer

A)  Assist investors in forecasting future operating results. 
B)  Increase the amount of reported profit. 
C)  Decrease the amount of profit subject to income taxes. 
D)  Provide investors with the information necessary to compute earnings per share. 
A)  Assist investors in forecasting future operating results. 
B)  Increase the amount of reported profit. 
C)  Decrease the amount of profit subject to income taxes. 
D)  Provide investors with the information necessary to compute earnings per share.

Question 19

During the year 2009, Tosco Corporation suffered an $800,000 loss when its factory was destroyed in a flood. Assuming the corporate income tax rate is 36%, what amount will Tosco report as an extraordinary loss on its income statement for 2009? Assume floods are not common in this area.

Accepted Answer

A)  $800,000 
B)  Nothing, since IASB does not allow extraordinary items. 
C)  $288,000. 
D)  $672,000 
A)  $800,000 
B)  Nothing, since IASB does not allow extraordinary items. 
C)  $288,000. 
D)  $672,000

Question 20

Discontinued operations
The operations of Global Entertainment, Inc., for the current year are summarized below:
 $\begin{array}{|l|c|c|}
\hline& \text { From } & \text { From } \
\hline& \text { Continuing } & \text { Discontinued } \
\hline& \text { Operations } & \text { Segment }\
\hline \text { Sales } & \$ 8,060,000 & \$ 2,275,000 \
\hline \text { Costs and expenses (including applicatble income taxes) } & 6,890,000 & 3,315,000 \
\hline \text { Gain on disposal of discontinued segment, net of income taxes } & & 676,000\
\hline 
\end{array}$
 Global Entertainment had 400,000 shares outstanding. Complete the following condensed income statement for the year, including the appropriate earnings per share figures.
 GLOBAL ENTERTAINMENT, INC
Income Statement
For the Year Ended December 31, 2006
$\begin{array}{|l|l|}
 \hline \text { Sales } & \text {\$\quad\quad\quad  }  \
\hline \text { Costs and expenses (including applicable income taxes) } & \text {  } \
\hline\
 \hline\text { Earnings per share } & \text {  } \
\hline
\end{array}$

Accepted Answer

None

A retrospective restatement to retained earnings is made when a discovery of a material error was made to prior years' profit.

In order to receive a dividend, a shareholder must have owned the shares as of the declaration date.

Which of the following items would reduce retained earnings?

Earnings per share is equal to profit applicable to ordinary share divided by the weighted number of ordinary shares outstanding.

In an attempt to appeal to investors, a company may be tempted to overstate profit.

The ordinary share of Securetech Corporation consistently sells at a market price of 20 times earnings, i.e., at a p/e ratio of 20. What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?

The amount of cash dividends paid to ordinary shareholders is part of the computation of earnings per share.

Share splits are always in a 2 for 1 ratio.

The IASB has prohibited the reporting of what is considered to be an extraordinary item.

Which of the following items would be included in comprehensive income but not reported as a component of profit?

The statement of changes in equity discloses the amount of cash dividends as well as stock dividends declared during the current year.

According to the Sarbanes-Oxley Act lying to an external auditor can create a criminal penalty as well as a civil penalty.

To qualify as a discontinued operation, a gain or loss must:

The purpose of developing the subtotals "Profit from Continuing Operations" in an income statement is to:

During the year 2009, Tosco Corporation suffered an $800,000 loss when its factory was destroyed in a flood. Assuming the corporate income tax rate is 36%, what amount will Tosco report as an extraordinary loss on its income statement for 2009? Assume floods are not common in this area.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Property, Plant, and Equipment, Intangible Assets and Natural Resources

Liabilities

Shareholders Equity: Capital

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

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Exam 12: Profit and Changes in Retained Earnings

A retrospective restatement to retained earnings is made when a discovery of a material error was made to prior years' profit.

In order to receive a dividend, a shareholder must have owned the shares as of the declaration date.

Which of the following items would reduce retained earnings?

Earnings per share is equal to profit applicable to ordinary share divided by the weighted number of ordinary shares outstanding.

In an attempt to appeal to investors, a company may be tempted to overstate profit.

The ordinary share of Securetech Corporation consistently sells at a market price of 20 times earnings, i.e., at a p/e ratio of 20. What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?

The amount of cash dividends paid to ordinary shareholders is part of the computation of earnings per share.

Share splits are always in a 2 for 1 ratio.

The IASB has prohibited the reporting of what is considered to be an extraordinary item.

Which of the following items would be included in comprehensive income but not reported as a component of profit?

The statement of changes in equity discloses the amount of cash dividends as well as stock dividends declared during the current year.

According to the Sarbanes-Oxley Act lying to an external auditor can create a criminal penalty as well as a civil penalty.

To qualify as a discontinued operation, a gain or loss must:

The purpose of developing the subtotals "Profit from Continuing Operations" in an income statement is to:

During the year 2009, Tosco Corporation suffered an $800,000 loss when its factory was destroyed in a flood. Assuming the corporate income tax rate is 36%, what amount will Tosco report as an extraordinary loss on its income statement for 2009? Assume floods are not common in this area.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Property, Plant, and Equipment, Intangible Assets and Natural Resources

Liabilities

Shareholders Equity: Capital

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Filters