Deck 14: Corporate Reporting: Income,earnings Per Share,and Retained Earnings

Question 1

A share dividend is not a liability on the balance sheet because it does not require a distribution of assets.

Answer 1

True

Question 2

A share dividend capitalizes retained earnings because it decreases a company's contributed capital.

Answer 2

False

Question 3

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements or it is required by IFRS.

Answer 3

True

Question 4

A share dividend is a distribution of corporate assets as a dividend that returns part of the original investment to shareholders.

Question 5

The journal entry to record $25,000 market value in share dividends on the date of declaration can be a debit to share dividends and a credit to common share dividends distributable.

Question 6

A share dividend reduces the number of previously outstanding shares.

Question 7

A reverse share split reduces the market value of shares and the par value per share.

Question 8

A share split decreases the market price of the company shares.

Question 9

A cash dividend does not reduce a corporation's assets or equity,while a share dividend reduces both.

Question 10

A share dividend is a corporation's distribution of its own shares to its shareholders without receiving any payment in return.

Question 11

The journal entry to record $10,000 in a share dividend on the declaration date can include a debit to cash dividends declared and a credit to dividends payable.

Question 12

The statement of comprehensive income is a detailed statement of net income plus or minus any other comprehensive income items.

Question 13

Earnings per share is the amount of income earned by each share of a company's outstanding common shares.

Question 14

A share split affects total equity as reported on the balance sheet.

Question 15

If a company's activities include operations that are being discontinued,the income or loss effects of the discontinued operations are included on the income statement in income from continuing operations.

Question 16

A 10% share dividend increases the number of outstanding shares.

Question 17

A share dividend increases the number of previously outstanding shares.

Question 18

A share split is the distribution of additional shares to shareholders according to their percent of ownership.

Question 19

Share dividends are recorded at market value.

Question 20

A share dividend reduces a corporation's assets and equity.

Question 21

Changes in accounting estimates are treated as accounting errors.

Question 22

Purchasing treasury shares reduces retained earnings.

Question 23

The Treasury Shares account is a contra equity account.

Question 24

As part of the year-end closing process the Share Dividends account is closed to Retained Earnings.

Question 25

Item(s)that would be included in other comprehensive income include:

A) Unrealized gains (losses)on held for trading investments.
B) Unrealized gains (losses)on available-for-sale investments.
C) Unrealized gains (losses)on held to maturity investments.
D) Unrealized gains (losses)on discontinued operation.
E) Net incomE.

Question 26

Treasury shares are shares that have been authorized,issued,and are outstanding.

Question 27

The cumulative effect of changing accounting principles is only reported for the year of the change.

Question 28

The Contributed Capital,Treasury Shares account can have a zero or credit balance,but it cannot have a debit balance.

Question 29

Changes in accounting estimates are applied in determining expenses for the current and future periods.

Question 30

The purchase of treasury shares for cash reduces the corporation's assets and equity by equal amounts.

Question 31

Restricted retained earnings must be disclosed on the balance sheet or the statement of changes in equity,or in the notes to the financial statements.

Question 32

An expanded income statement for a corporation with discontinued operations includes information on:

A) Continuing operations.
B) Discontinued operations.
C) Earnings per share.
D) Net income.
E) All of these answers are correct.

Question 33

Reporting for discontinued operations includes:

A) Income or loss from operating the discontinued segment (net of tax).
B) Gain or loss from disposal of the segment's net assets (net of tax).
C) Income or loss from operating the discontinued operations (net of tax)and gain or loss from disposal of the operation's net assets (net of tax).
D) Tax benefits of the discontinued segment.
E) All of these answers are correct.

Question 34

Company purchases and retirements of treasury shares are made at a company's discretion.

Question 35

Retained earnings are part of the shareholders' claim on the company's net assets.

Question 36

If a company resells treasury shares below the acquisition cost,then it must report a loss from the sale of treasury shares.

Question 37

A corporation's distribution of its own shares to its shareholders without receiving any payment in return is a:

A) Premium on shares.
B) Share subscription.
C) Share dividend.
D) Discount on shares.
E) Preferred sharE.

Question 38

After using an expected useful life of seven years and no residual value to depreciate its machine over the preceding two years,a company decided early this year that the machine would last only three more years.The change in accounting estimate results in an adjustment to ending retained earnings for the prior period with no impact on any future periods.

Question 39

Earnings per share is calculated by dividing the number of common shares outstanding by net income.

Question 40

North American Construction Corp.has three lines of business including surveying,excavating and planning.These product lines are considered to be:

A) Other comprehensive income.
B) Discontinued operations.
C) Operating segments.
D) Contributed capital.
E) All of these answers are correct.

Question 41

Failure to record the declaration and distribution of a share dividend would:

A) Have no effect on total equity.
B) Cause the outstanding shares to exceed the equity.
C) Cause an understatement of equity.
D) Cause an overstatement of equity.
E) Cause the balance sheet to be out of balancE.

Question 42

McJunkin Ltd.declares a 10% share dividend on December 31,2015.Currently McJunkin has 30,000 shares outstanding.The market value of the shares on the date of declaration is $3 per share.The value to be assigned to this share dividend is:

A) $5,000.
B) $8,000.
C) $2,000.
D) $6,000.
E) $9,000.

Question 43

When a corporation calls in its outstanding shares and issues more than one new share in exchange for each old share,this is a:

A) Share split.
B) Share dividend.
C) Cash dividend.
D) Reverse share split.
E) Liquidating dividend.

Question 44

A share dividend transfers:

A) Contributed capital to retained earnings.
B) Contributed capital to assets.
C) Retained earnings to assets.
D) Retained earnings to contributed capital.
E) Assets to contributed capital.

Question 45

The financial statement impact for a company that desires to make a change in accounting policy include(s):

A) Retrospective restatement of prior period financial statements.
B) Financial impact charged or credited (net of tax)to the opening balance of retained earnings.
C) The nature and justification for the change.
D) The effect of the change on current year net income.
E) All of these answers are correct.

Question 46

Shares that are reacquired and are not cancelled by the issuing corporation are called:

A) Capital shares.
B) Treasury shares.
C) Redeemed shares.
D) Preferred shares.
E) Callable shares.

Question 47

Restrictions on retained earnings can be:

A) Limits that identify how much of the retained earnings balance is not available for dividends or the repurchase of shares
B) Statutory limits set by government.
C) Due to loan agreements.
D) Set by a corporation's directors in order to limit dividends and maintain cash.
E) All of these answers are correct.

Question 48

A change from moving weighted average to FIFO reporting is:

A) A change that results in a discontinued operation.
B) A change in accounting principle and is allowed if it improves the usefulness of information in the financial statements.
C) Not allowed once an inventory costing method has been chosen.
D) Allowed if it improves the usefulness of information in the financial statements.
E) A change in accounting principle and is not allowed even if it improves the usefulness of information in the financial statements.

Question 49

Which of the following is true about treasury shares?

A) Treasury shares are held by shareholders.
B) Treasury shares increase retained earnings.
C) Treasury shares increase the number of common shares outstanding.
D) If treasury shares are sold for more than cost,this results in a gain for the company.
E) Treasury Shares are reported as a separate item in the equity section of the balance sheet.

Question 50

The act of a corporation to call in its shares and issue one new share in the place of more than one share previously outstanding is a:

A) Share dividend.
B) Reverse share split.
C) Liquidating dividend.
D) Share split.
E) Cash dividend.

Question 51

A share dividend:

A) Is a distribution of additional shares to its shareholders without receiving any payment.
B) Transfers a portion of equity from retained earnings to contributed capital.
C) Is often referred to as a stock dividend.
D) Does not reduce a corporation's assets and equity.
E) All of these answers are correct.

Question 52

Retrospective restatement of financial statements can result from:

A) Changes in estimates.
B) Changes in accounting policies.
C) Errors in the current income statements.
D) Changes in tax law.
E) Contributed capital.

Question 53

Companies use share dividends:

A) To keep the market price of the shares affordable.
B) To increase the market value of shares.
C) To increase contributed capital.
D) To raise capital for the company for future expansion.
E) All of these answers are correct.

Question 54

The amount of income earned by each outstanding common share of a corporation is known as:

A) Restricted retained earnings.
B) Income from continuing operations.
C) Earnings per share.
D) Dividends payable.
E) A share dividend.

Question 55

Changes in accounting estimates are:

A) Considered to be accounting errors.
B) Reported by retrospective restatement of financial statements.
C) Accounted for with a cumulative "catch-up" adjustment.
D) Considered to be a change in accounting policy.
E) Accounted for in the period of the change and future periods.

Question 56

Treasury shares are recorded as a(n):

A) Asset.
B) Contra asset.
C) Equity.
D) Contra equity.
E) Liability.

Question 57

On July 1,Stubbs Corporation had 100,000 no-par-value common shares outstanding.On this day the board of directors declared a 10% share dividend.The fair market value of each share was $13.A possible entry to record this dividend is:

A)

B)

C)

D)

E)

Question 58

Just before Amigone Funeral Homes Inc.issued a 10% share dividend on November 1,the following data were collected: The amount that total equity will increase (decrease)as a result of recording the share dividend is:

A) $7,500.
B) $(9,000).
C) $22,500.
D) $(27,000).
E) $-0-.

Question 59

Retained earnings:

A) Are the cumulative net profits or losses minus dividends paid since the date of incorporation.
B) Are part of the income statement.
C) Represent an amount of cash available to pay shareholders.
D) Are the cumulative net profits or losses minus dividends paid since the date of incorporation,and are part of shareholders' equity.
E) All of these answers are correct.

Question 60

A change in accounting policy will be presented on the:

A) Income Statement.
B) Balance Sheet.
C) Cash Flow Statement.
D) Statement of Changes in Equity.
E) All of these answers are correct.

Question 61

Describe share dividends and share splits.

Question 62

On July 31,Fly by Night Airline Ltd's equity was: Also note that on July 31 the market value of Fly by Night Airline's shares was $15 per share.The directors considered declaring a 10% or 20% share dividend and wanted to know what effect each share dividend would have on total equity.Calculate the balances that should be in the following accounts after a share dividend distribution.

Question 63

Explain the form and content of an expanded income statement for a corporation with discontinued operations.

Question 64

Beta Inc.had the following equity as of December 31,Year 1: The following transactions related to the company's shares took place during Year 2: Prepare the journal entries to record the Year 2 transactions.

Question 65

Explain where each of the following items should appear in the financial statements of Reid and Right Corp,a publishing company:
(1)After the retirement of the company's CEO,the company has decided to downsize its operations.This will include the elimination of the children's book segment of operations.
(2)The company holds 500 shares in Dakota Corp.that originally cost $2,000; the shares now have a market value of $4,000.They are being accounted for as an available-for-sale investment.

Question 66

A corporation began the year with $550,000 of retained earnings,reported $140,000 net income,declared $45,000 of cash dividends,paid $50,000 in cash dividends,and purchased treasury shares costing $40,000.Calculate the end-of-year balance in retained earnings.

Question 67

Given the following information about Rex Carrs Driving School Corporation's current-year activities,answer the questions listed below:
What amounts should be reported on the income statement as:

Question 68

The following data were obtained from Cook the Books Accounting Inc.: The number of outstanding shares is:

A) 12,000.
B) 18,000.
C) 17,000.
D) 23,000.
E) 15,000.

Question 69

The Drain Surgeon Corp's equity on January 1 was as follows: common shares,unlimited shares authorized,250,000 shares issued and outstanding; retained earnings,$1,000,000.
Prepare journal entries to record the following transactions:

Question 70

Hard Wok Cafe Corporation has 100,000 common shares outstanding.The following transactions related to the company's shares took place during the year: Prepare the journal entries to record the transactions.

Question 71

Explain the procedure to record the purchase and sale of treasury shares.

Question 72

Quantum Corporation had net income of $35,000 and paid preferred dividends of $6,000..Quantum had 4,000 common shares outstanding.Calculate the earnings per share.

Question 73

The Kids Exchange Corporation issued common shares for $35 each.Two years later,on June 10,1,000 shares were repurchased and retired at a cost of $25 each.Present the general journal entry to record the June 10 transaction.

Question 74

Retirement of shares:

A) Reduces the number of issued shares.
B) Is permissible under law if the interest of the shareholders is not jeopardized.
C) Is accounted for like treasury shares.
D) Reduces the number of issued shares and is permissible under law if the interest of the shareholders is not jeopardized.
E) All of these answers are correct.

Question 75

Explain how to calculate earnings per share and how it is used for analysis of a company's financial status.

Question 76

For each of the following independent situations,present the necessary journal entry:
(a)Declared and distributed a 10% share dividend on 500,000 shares of common shares outstanding.Market price per share on this date was $15.
(b)With 250,000 shares of common shares outstanding,declared and distributed a 2 for 1 share split.
(c)Declared and distributed a 30% share dividend on 200,000 shares of common shares outstanding.Market price per share on this date was $14.

Question 77

Seven Corporation originally issued its common shares at $35 per share.
(1)Prepare a journal entry to record the purchase and retirement of 500 shares if Seven Corporation paid $30 per share.The company has a retained earnings balance of $50,000.
(2)Prepare a journal entry to record the purchase and retirement of 500 shares if Seven Corporation paid $40 per share.

Question 78

Cheatem Lawyers Inc has 9,000 common shares outstanding about which the following data has been collected: The cost per share of the treasury shares is:

A) $1.15.
B) $1.28.
C) $10.50.
D) $11.50.
E) None of these answers is correct.

Question 79

Kriton Corporation had net income of $375,000 and paid preferred dividends of $80,000.Kriton had 50,000 common shares outstanding.Calculate the earnings per share.

Question 80

Argue and Fibbs Lawyer Corporation repurchased 200 shares on June 1,for $10,000,to be kept in the treasury.On July 1,it reissued 50 of these shares at $52 per share.On August 1,it reissued the rest of the treasury shares at $49 per share.What is the balance in the Contributed Capital,Treasury Shares account on September 1?

A) $5,050.
B) $2,600.
C) $100.
D) $50.
E) $-0-.