Question 1

Taxable income is found on the:

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  tax return 
D)  retained earnings statement

Question 2

EPS (Earnings Per Share) is a key measure of a business's success. Which statement below is true regarding EPS and a company's financial statements?

Accepted Answer

A)  The EPS calculation never takes into consideration preferred shares or preferred shares dividends. 
B)  EPS is based on the number of common shares outstanding at the end of an accounting period. 
C)  An EPS figure should be calculated and presented for each significant element of net income on the income statement. 
D)  EPS based on the actual outstanding number of common shares of stock is called diluted EPS.

Question 3

The primary responsibility of the independent auditor is to decide whether the company's:

Accepted Answer

A)  internal controls are effective 
B)  financial statements are free from errors 
C)  management has complied with all applicable laws and regulations during the fiscal year under audit 
D)  financial statements comply with generally accepted accounting principles (GAAP)

Question 4

Prior-period adjustments are made when an error occurs in one period and it is corrected in a later period.

Accepted Answer

A) True 
 B)False

Question 5

On January 1, 2014, Guided Light Corporation's Retained Earnings account had a balance of $275,000. During 2014, cash dividends of $50,000 were declared and stock dividends with a market value of $40,000 were declared. Net income for 2014 amounted to $120,000. What is the balance in Retained Earnings appearing on the statement of shareholders' equity on December 31, 2014?

Accepted Answer

A)  $305,000 
B)  $185,000 
C)  $395,000 
D)  $345,000

Question 6

JetNew has a tax rate of 30%. The controller has just calculated JetNew's accounting income (pre-tax) to be $660,000 for 2013. Taking into account the differences in calculation, JetNew's taxable income is $530,000. Prepare the journal entry to record JetNew's taxes for 2013 under IFRS.
Outline for each account used where it would appear on JetNew's financial statements.

Accepted Answer

The answer of JetNew has a tax rate of 30%....

Question 7

The amount of cash dividends declared during the period and the amount of cash dividends paid during the period are reflected in the:

Accepted Answer

A)  income statement and cash flow statement, respectively 
B)  statement of shareholders' equity and income statement, respectively 
C)  statement of shareholders' equity and the cash flow statement, respectively 
D)  cash flow statement and statement of shareholders' equity, respectively

Question 8

Prior-period adjustments are:

Accepted Answer

A)  added to beginning balance of retained earnings 
B)  added to or deducted from the beginning balance of retained earnings 
C)  deducted from ending balance of retained earnings 
D)  added to or deducted from net income

Question 9

Describe the process of income tax accrual. What is the goal of income tax accrual? When is income tax expense recorded? How is income tax expense calculated? Is this the same amount that will be paid to the government when the income tax return is filed? Discuss a common difference between pretax accounting income and taxable income.

Accepted Answer

The answer of Describe the process of income tax accrual....

Question 10

On January 1, 2013, Bogie Corporation had 40,000 common shares outstanding issued at $16 each during 2012. On June 1, 2013, Bogie Corporation issued 5,000 shares of its common shares at $15 per share. On September 30, 2013, Bogie Corporation repurchased 3,000 shares of its common shares for $17 per share. On November 30, 2013, Bogie Corporation reissued 2,000 shares of repurchased shares at $18 per share. The balance in Share Capital on December 31, 2013, as shown on the statement of shareholders' equity, is:

Accepted Answer

A)  $640,000 
B)  $700,000 
C)  $703,333 
D)  $756,000

Question 11

Preferred share dividends must be accounted for in the earnings-per-share calculation. Preferred dividends are:

Accepted Answer

A)  added to net income in the numerator of the EPS calculation 
B)  subtracted from common shares in the denominator of the EPS calculation 
C)  added to common shares in the denominator of the EPS calculation 
D)  subtracted from net income in the numerator of the EPS calculation

Question 12

The responsibility for a company's financial statements rests with:

Accepted Answer

A)  the treasurer of the company 
B)  top management of the company 
C)  the controller of the company 
D)  the external accountants that perform the independent audit

Question 13

If a corporation has issued either nonconvertible preferred shares or nonconvertible bonds, it must present:

Accepted Answer

A)  only basic earnings per share 
B)  only diluted earnings per share 
C)  either basic or diluted earnings per share 
D)  both basic and diluted earnings per share

Question 14

Income tax expense is based on ________ from the income statement while income tax payable is based on ________ from the income tax return.

Accepted Answer

A)  net income, taxable income 
B)  taxable income, net income 
C)  pretax accounting income, taxable income 
D)  taxable income, pretax accounting income

Question 15

The statement of retained earnings reports the changes in all categories of equity during the period.

Accepted Answer

A) True 
 B)False

Question 16

Traxx Corporation reports net income for 2014 of $460,000. Traxx Corporation had 10,000 shares of $10 preferred shares outstanding for all of 2014. Traxx Corporation also had 50,000 common shares issued at $10 outstanding for all of 2014. Earnings per share is:

Accepted Answer

A)  $6.00 
B)  $6.67 
C)  $7.20 
D)  $8.00

Question 17

In what situation would a company have to calculate and report diluted EPS on the financial statements?

Accepted Answer

A)  a company that has both convertible preferred and common shares issued and outstanding 
B)  a company whose common shares' fair market value has dropped 20% from the prior financial statement reporting period 
C)  a company that has both nonconvertible preferred and common shares issued and outstanding 
D)  a company that has only common shares issued and outstanding

Question 18

The financial statement that reports the changes in all categories of equity during the period is called the:

Accepted Answer

A)  statement of income 
B)  statement of shareholders' equity 
C)  statement of retained earnings 
D)  statement of changes in financial position

Question 19

Gail. Inc. has 100,000 common shares outstanding at the beginning of 2013. The company issued an additional 50,000 common shares on July 1, 2013. Gail Inc.'s net income for the year ended December 31, 2013 was $300,000; its comprehensive income was $450,000. Gail Inc. paid dividends of $50,000 during the year. What was Gail Inc.'s basic EPS for 2013?

Accepted Answer

A)  $2.00 
B)  $2.40 
C)  $3.00 
D)  $3.60

Question 20

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

Accepted Answer

A)  inventory acquired for cash 
B)  land exchanged for common shares 
C)  repurchased shares reissued by the corporation 
D)  stock dividends declared by the board of directors

Exam 11: The Income Statement, the Statement of Comprehensive Income, and the Statement of Shareholders Equity