Question 1

A statement of stockholders' equity would not include which type of transaction?

Accepted Answer

A) Treasury stock reissued by the corporation 
B) Inventory acquired for cash 
C) Land exchanged for common stock 
D) Stock dividends declared by the board of directors

Question 2

A qualified audit opinion means that the financial statements have been prepared by a certified public accountant.

Accepted Answer

A) True 
 B)False

Question 3

The actual market value of a corporation can be calculated by:

Accepted Answer

A) subtracting the current market price per share from the shares outstanding. 
B) dividing the current market price per share by the shares outstanding. 
C) multiplying the shares outstanding times the current market price per share. 
D) dividing the shares outstanding times the current market price per share.

Question 4

A company is required to report both basic and diluted earnings per share when the:

Accepted Answer

A) company reports both net income and comprehensive income. 
B) company has extraordinary gains and losses. 
C) company's capital structure includes convertible preferred stock. 
D) company's outstanding stock is less than its issued stock.

Question 5

When management issues a statement of responsibility, management declares its responsibility for the financial statements and states that they conform to GAAP.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following should probably be included when estimating future earnings? i. income from continuing operations
Ii. gain on sale of business segment
Iii. loss due to natural disaster

Accepted Answer

A) i and iii only 
B) i only 
C) i and ii 
D) All of these answers are correct.

Question 7

Net income was understated in the previous year. The entry to record the correction includes a:

Accepted Answer

A) credit to Retained Earnings. 
B) credit to Income Summary. 
C) debit to Retained Earnings. 
D) debit to Income Summary.

Question 8

When the computed estimated value of a company exceeds the company's current market value, a potential investor should consider buying the stock.

Accepted Answer

A) True 
 B)False

Question 9

Putman Corporation reported income from continuing operations of $58,000 and net income of $65,000. Putman had 200,000 shares of $2.00 par value common stock outstanding for the year. The capitalization rate is 12%. The appropriate investment decision should be to:

Accepted Answer

A) sell the stock. 
B) hold the stock. 
C) buy the stock. 
D) get additional information before making a decision.

Question 10

The estimated value of a company's stock exceeds the current market value of the company. The appropriate investment decision should be:

Accepted Answer

A) to buy the company's stock. 
B) to hold the company's stock. 
C) to sell the company's stock. 
D) none of the above. The analyst does not have sufficient information to make a prudent investment decision in this situation.

Question 11

Jennings Corporation's net income for the current year was $270,000. The corporation had outstanding 5,000 shares of 10%, $100 par value nonconvertible preferred stock and 10,000 shares of $20 par value common stock. No shares were issued or retired during the year. The amount of income to be used in the basic calculation of earnings per share is:

Accepted Answer

A) $245,000. 
B) $220,000. 
C) $350,000. 
D) $285,000.

Question 12

Taxable income is found on the:

Accepted Answer

A) tax return and income statement. 
B) balance sheet and income statement. 
C) tax return. 
D) income statement.

Question 13

On January 1, Polk Corporation's Retained Earnings account had a balance of $625,000. During the year, cash dividends of $27,000 and stock dividends with a market value of $53,000 were declared and distributed. Polk Corporation reported a net loss of $7,000 for the year. What is the balance in Retained Earnings on December 31?

Accepted Answer

A) $625,000 
B) $620,000 
C) $545,000 
D) $538,000

Question 14

Deferred tax liability is computed by multiplying taxable income by the income tax rate.

Accepted Answer

A) True 
 B)False

Question 15

Deferred tax liability is normally classified as a and income tax payable is classified as a on the balance sheet.

Accepted Answer

A) current liability; long- term liability 
B) long- term liability; current liability 
C) long- term liability; long- term liability 
D) current liability; current liability

Question 16

The most common difference between accounting income and taxable income is when a corporation uses straight- line depreciation in its financial statements and accelerated depreciation in its tax return.

Accepted Answer

A) True 
 B)False

Question 17

The gain or loss on the disposal of a business segment is shown on the income statement as:

Accepted Answer

A) an extraordinary item. 
B) other gains or losses. 
C) a component of comprehensive income. 
D) part of discontinued operations.

Question 18

A company sold an unused building at a loss. The loss from this event would be shown as:

Accepted Answer

A) a normal business occurrence requiring an adjustment to the beginning balance in Retained Earnings. 
B) other gains and losses. 
C) an extraordinary item. 
D) a prior- period adjustment.

Question 19

Aziz Corporation has taxable income of $525,000 and pretax accounting income of $495,000. The company's income tax rate is 35%. The company's income tax rate is 35%. The entry to record the income tax includes a:

Accepted Answer

A) credit to Income Tax Payable for $183,750. 
B) credit to Income Tax Payable for $173,250. 
C) debit to Income Tax Payable for $173,250. 
D) debit to Income Tax Expense for $183,750.

Question 20

Unrealized gains and losses or available- for- sale investments is part of other comprehensive income.

Accepted Answer

A) True 
 B)False

Exam 11: The Income Statement and the Statement of Stockholders Equity

A statement of stockholders' equity would not include which type of transaction?

A qualified audit opinion means that the financial statements have been prepared by a certified public accountant.

The actual market value of a corporation can be calculated by:

A company is required to report both basic and diluted earnings per share when the:

When management issues a statement of responsibility, management declares its responsibility for the financial statements and states that they conform to GAAP.

Which of the following should probably be included when estimating future earnings? i. income from continuing operations Ii. gain on sale of business segment Iii. loss due to natural disaster

Net income was understated in the previous year. The entry to record the correction includes a:

When the computed estimated value of a company exceeds the company's current market value, a potential investor should consider buying the stock.

Putman Corporation reported income from continuing operations of $58,000 and net income of $65,000. Putman had 200,000 shares of $2.00 par value common stock outstanding for the year. The capitalization rate is 12%. The appropriate investment decision should be to:

The estimated value of a company's stock exceeds the current market value of the company. The appropriate investment decision should be:

Taxable income is found on the:

Deferred tax liability is computed by multiplying taxable income by the income tax rate.

Deferred tax liability is normally classified as a and income tax payable is classified as a on the balance sheet.

The most common difference between accounting income and taxable income is when a corporation uses straight- line depreciation in its financial statements and accelerated depreciation in its tax return.

The gain or loss on the disposal of a business segment is shown on the income statement as:

A company sold an unused building at a loss. The loss from this event would be shown as:

Aziz Corporation has taxable income of $525,000 and pretax accounting income of $495,000. The company's income tax rate is 35%. The company's income tax rate is 35%. The entry to record the income tax includes a:

Unrealized gains and losses or available- for- sale investments is part of other comprehensive income.