Question 1

Earnings per share is used to help determine the value of a share of common stock.

Accepted Answer

A) True 
 B)False

Question 2

Foreign-currency transaction gains and losses are reported as part of operating income because they arise from the company's main business.

Accepted Answer

A) True 
 B)False

Question 3

Accounting changes:

Accepted Answer

A) make it difficult to compare one period with preceding periods. 
B) require detailed information to keep investors from being misled. 
C) may result when companies discover errors they have made in applying accounting principles that must be corrected. 
D) all of the above statements are correct.

Question 4

The estimated value of a share of a company's stock is less than the current market price per share. Based on this information, the investment decision rule is to:

Accepted Answer

A) buy the company's stock. 
B) hold the company's stock. 
C) sell the company's stock. 
D) sell the company's stock on the margin.

Question 5

Diluted earnings per share takes into account potential decreases in outstanding shares of common stock.

Accepted Answer

A) True 
 B)False

Question 6

One reason why taxable income and pretax accounting income may not be equal is due to the difference in depreciation methods used.

Accepted Answer

A) True 
 B)False

Question 7

The independent auditors' report is addressed to:

Accepted Answer

A) stockholders only. 
B) board of directors only. 
C) board of directors and stockholders. 
D) management.

Question 8

A type of financial statement fraud that is accomplished by shipping more to customers than they ordered, with the expectation that they may return some or all of the items is called:

Accepted Answer

A) improper asset recognition. 
B) improper expense recognition. 
C) channel stuffing. 
D) cooking the books.

Question 9

1. During 2017, Vanderbilt Corporation had 500,000 shares of $1 par value common stock outstanding and 25,000 shares of 5%, $100 par value preferred stock outstanding. There were no stock transactions during the year. Net income for the year was $540,000. Compute the earnings per share.
2. During 2017, Fusion Valley Corporation had 500,000 shares of $1 par value common stock outstanding and 40,000 shares of 5%, $100 par value preferred stock outstanding. There were no stock transactions during the year. Net income for the year was $740,000. Compute the earnings per share.

Accepted Answer

The answer of 1. During 2017, Vanderbilt Corporation had 500,000...

Question 10

Roughly half of all financial statement frauds over the past two decades have involved improper ________ recognition.

Accepted Answer

A) expense 
B) revenue 
C) asset 
D) liability

Question 11

WorldCom committed financial statement fraud by deliberately overstating expenses.

Accepted Answer

A) True 
 B)False

Question 12

For a retailer, how is Interest Expense classified on a multistep income statement?

Accepted Answer

A) Operating Expenses 
B) Selling Expense 
C) Financing Expense 
D) Other Expenses and Losses

Question 13

A company has a foreign-currency transaction gain of $500 and a foreign-currency transaction loss of $9500. How is this information reported on the income statement?

Accepted Answer

A) Other Losses: Foreign-Currency Transaction Loss $9500 and Other Gains: Foreign-Currency Transaction Gain $500 
B) Other Losses: Foreign-Currency Transaction Loss, net $9000 
C) Other Comprehensive Loss: Foreign-Currency Transaction Loss $9500 and Other Comprehensive Income: Foreign-Currency Transaction Gain $500 
D) Other Comprehensive Loss: Foreign-Currency Transaction Loss, net $9000

Question 14

The foreign-currency transaction gain account holds gains and losses on transactions settled in a foreign currency.

Accepted Answer

A) True 
 B)False

Question 15

The weighted-average cost of capital is influenced by the risk that a company might not be able to sustain a certain rate of return into the indefinite future.

Accepted Answer

A) True 
 B)False

Question 16

When a U.S.-based company holds a receivable denominated in a foreign currency, the U.S. company wants the foreign currency to ________ against the U.S. dollar so that the foreign currency can be converted into ________.

Accepted Answer

A) weaken; fewer dollars 
B) weaken; more dollars 
C) strengthen; fewer dollars 
D) strengthen; more dollars

Question 17

The weighted-average number of shares of common stock outstanding takes into account the changes that might occur in:

Accepted Answer

A) treasury stock purchases or reissuances. 
B) the acquisition of stock classified as trading securities. 
C) the issuance of additional shares of preferred stock. 
D) none of the above.

Question 18

Components of increasing earnings quality include all of the following EXCEPT:

Accepted Answer

A) declining or stable operating expenses compared to sales. 
B) improving gross margin compared to sales. 
C) increasing cost of goods sold to sales ratio. 
D) proper revenue and expense recognition.

Question 19

For a merchandiser, how is Interest Revenue classified on the income statement?

Accepted Answer

A) Income from Discontinued Operations 
B) Income from Financing Activities 
C) Other Revenues and Gains 
D) As a component of Net Sales Revenue

Question 20

Western Corporation has taxable income of $420,000 and pretax accounting income of $200,000. The company's income tax rate is 20%. The journal entry to record the income tax includes a:

Accepted Answer

A) debit to Income Tax Expense $84,000. 
B) credit to Deferred Tax Asset $44,000. 
C) debit to Deferred Tax Asset $44,000. 
D) credit to Income Tax Payable $40,000.

Exam 11: Evaluating Performance: Earnings Quality, the Income Statement, Statement of Comprehensive Income

Earnings per share is used to help determine the value of a share of common stock.

Foreign-currency transaction gains and losses are reported as part of operating income because they arise from the company's main business.

Accounting changes:

The estimated value of a share of a company's stock is less than the current market price per share. Based on this information, the investment decision rule is to:

Diluted earnings per share takes into account potential decreases in outstanding shares of common stock.

One reason why taxable income and pretax accounting income may not be equal is due to the difference in depreciation methods used.

The independent auditors' report is addressed to:

A type of financial statement fraud that is accomplished by shipping more to customers than they ordered, with the expectation that they may return some or all of the items is called:

Roughly half of all financial statement frauds over the past two decades have involved improper ________ recognition.

WorldCom committed financial statement fraud by deliberately overstating expenses.

For a retailer, how is Interest Expense classified on a multistep income statement?

A company has a foreign-currency transaction gain of $500 and a foreign-currency transaction loss of $9500. How is this information reported on the income statement?

The foreign-currency transaction gain account holds gains and losses on transactions settled in a foreign currency.

The weighted-average cost of capital is influenced by the risk that a company might not be able to sustain a certain rate of return into the indefinite future.

When a U.S.-based company holds a receivable denominated in a foreign currency, the U.S. company wants the foreign currency to against the U.S. dollar so that the foreign currency can be converted into .

The weighted-average number of shares of common stock outstanding takes into account the changes that might occur in:

Components of increasing earnings quality include all of the following EXCEPT:

For a merchandiser, how is Interest Revenue classified on the income statement?

Western Corporation has taxable income of $420,000 and pretax accounting income of $200,000. The company's income tax rate is 20%. The journal entry to record the income tax includes a: