Chapter 17 QUIZ—Earnings Per Share and Retained Earnings
Chapter 17 QUIZ—Earnings Per Share and Retained Earnings
MULTIPLE CHOICE
QUESTION # 1
1. Which one of the following indicators is intended to show the potential impacts of possible future events on a corporation’s performance?
|
a. |
basic earnings per share |
|
b. |
cash flow per share |
|
c. |
diluted earnings per share |
|
d. |
price/earnings ratio |
QUESTION # 2
6. Basic earnings per share is computed as
|
a. |
Net Income / Total Number of Common Shares Outstanding |
|
b. |
(Net Income- Preferred Dividends) / Total Number of Common Shares Outstanding |
|
c. |
(Net Income- Preferred Dividends) / Weighted-Average Number of Common Shares Outstanding |
|
d. |
Net Income / Weighted-Average Number of Common Shares Outstanding |
QUESTION # 3
8. Which of the following items would not be included in a basic earnings per share calculation?
|
a. |
undeclared dividends on noncumulative preferred stock |
|
b. |
declared dividends on noncumulative preferred stock |
|
c. |
undeclared dividends on cumulative preferred stock |
|
d. |
declared dividends on cumulative preferred stock |
QUESTION # 4
9. On January 1, 2010, Walters Corporation had 24,000 shares of common stock outstanding. On April 1, it reacquired 2,400 shares; on July 1, it issued 10,800 shares; on October 1, it issued another 9,600 shares; and on December 1, it reacquired 600 shares. The weighted average number of common shares outstanding for 2010 was
|
a. |
26,950 |
|
b. |
28,900 |
|
c. |
29,950 |
|
d. |
41,400 |
QUESTION # 5
10. On January 1, 2010, Brennen Corporation had 20,000 shares of common shares outstanding. During the year, it sold another 2,600 shares on July 1 and reacquired 600 shares on November 1. The corporation earned $337,600 net income. The company also has 15,000 shares of $10 par value, 6%, cumulative preferred stock on which no dividends have been declared for the last two years. The basic earnings per share for the year is
|
a. |
$15.92 |
|
b. |
$15.65 |
|
c. |
$15.50 |
|
d. |
$15.08 |
QUESTION # 6
12. On January 1, a corporation had 10,380 shares of common stock outstanding. On August 1, it sold an additional 6,000 shares. During the year, dividends of $4,800 and $56,000 were declared and paid on the common and preferred stock, respectively. Net income for the year was $240,000. The basic earnings per share for the year was
|
a. |
$10.56 |
|
b. |
$11.23 |
|
c. |
$14.29 |
|
d. |
$18.63 |
QUESTION # 7
13. On January 1, 2010, a corporation had 10,380 shares of common stock outstanding, and on June 1, it reacquired 6,000 shares. Despite a net loss for the year of $180,000, the company declared and paid cash dividends of $24,000 and $28,000 on common and preferred stock, respectively. The earnings per share for 2010 was
|
a. |
($33.72) |
|
b. |
($30.24) |
|
c. |
($22.10) |
|
d. |
($18.60) |
QUESTION # 8
15. On January 1, 2010, Smith Company had 21,000 shares of common stock outstanding and issued an additional 4,500 shares on May 1. The company declared and paid a cash dividend of $30,000 and earned $330,000 net income. The earnings per share for the year was
|
a. |
$15.00 |
|
b. |
$13.75 |
|
c. |
$12.94 |
|
d. |
$12.50 |
QUESTION # 9
16. Common shares outstanding are increased as a result of a stock dividend or stock split. For purposes of calculating the earnings per share, when is the stock dividend or stock split considered to have occurred?
|
a. |
at the beginning of the earliest comparative period for which earnings per share information is presented |
|
b. |
at the end of the earliest comparative period for which earnings per share information is presented |
|
c. |
at the beginning of the year declared |
|
d. |
as of the date of declaration |
QUESTION # 10
17. On January 1, a corporation had 20,000 shares of common stock outstanding. An additional 4,000 shares were issued on July 1, and on November 1, the company declared a 3-for-1 stock split. The denominator in the earnings per share calculation would be
|
a. |
36,000 |
|
b. |
56,000 |
|
c. |
66,000 |
|
d. |
72,000 |
QUESTION # 11
18. On January 1, a corporation had 60,000 shares of common stock outstanding. On March 1, the company reacquired 12,000 shares, and it declared a 10% stock dividend on October 1. The denominator in the earnings per share calculation would be
|
a. |
44,200 |
|
b. |
40,800 |
|
c. |
55,000 |
|
d. |
60,000 |
QUESTION # 12
22. Reporting diluted earnings per share is required for which type of corporate capital structure?
|
a. |
simple |
|
b. |
complex |
|
c. |
diluted |
|
d. |
primary |
QUESTION # 13
25. The potential dilutive effect of the exercise of stock options or warrants will affect which of the following when calculating diluted earnings per share?
|
a. |
the earnings per share numerator |
|
b. |
the earnings per share denominator |
|
c. |
both the numerator and the denominator |
|
d. |
neither the numerator nor the denominator |
QUESTION # 14
27. Dual presentation of the basic and diluted earnings per share amounts is
|
a. |
required for corporations with simple capital structures |
|
b. |
optional for corporations with simple capital structures |
|
c. |
optional for corporations of any structure |
|
d. |
required for corporations with complex capital structures |
QUESTION # 15
29. Smock Corporation had 30,000 shares of common stock outstanding during the year. In addition, there were compensatory stock options to purchase 3,000 shares of common stock at $20 a share outstanding the entire year. The average market price for the common stock during the year was $36 a share. The unrecognized compensation cost (net of tax) relating to these options was $4 a share. The denominator to compute the diluted earnings per share is
|
a. |
31,000 |
|
b. |
31,333 |
|
c. |
31,667 |
|
d. |
33,000 |
QUESTION # 16
30. Under the treasury stock method, the number of shares of common stock assumed to be reacquired is determined by using the
|
a. |
ending market price of the stock |
|
b. |
average market price of the stock |
|
c. |
beginning market price of the stock |
|
d. |
par value of the stock |
QUESTION # 17
31. The assumed conversion of convertible debt and preferred stock in diluted earnings per share calculations affects
|
a. |
the numerator only |
|
b. |
the denominator only |
|
c. |
both the numerator and denominator |
|
d. |
neither the numerator nor the denominator |
QUESTION # 18
34. In the determination of the diluted earnings per share, convertible securities are
|
a. |
included if they are dilutive |
|
b. |
included whether they are dilutive or not |
|
c. |
included if they are antidilutive |
|
d. |
not included |
QUESTION # 19
35. Interest expense on convertible bonds that are dilutive is included in the numerator of the diluted earnings per share calculation at an amount equal to
|
a. |
interest expense |
|
b. |
interest payable |
|
c. |
interest expense times the tax rate |
|
d. |
interest expense times one minus the tax rate |
QUESTION # 20
36. The term deficit in financial accounting means
|
a. |
net loss |
|
b. |
a negative retained earnings balance |
|
c. |
a negative cash balance |
|
d. |
a negative stockholders’ equity total |
QUESTION # 21
37. How will a company’s working capital and net income be affected by the recording of a cash dividend on the declaration date? (Assume the dividend is paid on a later date.)
|
Working Capital |
Net Income |
|
|
I. |
decrease |
decrease |
|
II. |
decrease |
no effect |
|
III. |
no effect |
no effect |
|
IV. |
no effect |
decrease |
|
a. |
I |
|
b. |
II |
|
c. |
III |
|
d. |
IV |
QUESTION # 22
45. The Carol Company has issued 10%, fully participating, cumulative preferred stock with a total par value of $600,000 and common stock with a total par value of $900,000. No dividends are in arrears. How much cash will be paid to the preferred stockholders and the common stockholders, respectively, if cash dividends of $141,000 are distributed?
|
a. |
$ 60,000 and $90,000 |
|
b. |
$114,000 and $27,000 |
|
c. |
$ 51,000 and $90,000 |
|
d. |
$ 60,000 and $81,000 |
QUESTION # 23
46. The Farmer Company has issued 10%, fully participating, cumulative preferred stock with a total par value of $300,000 and common stock with a total par value of $900,000. Dividends for one previous year are in arrears. How much cash will be paid to the preferred stockholders and the common stockholders, respectively, if cash dividends of $222,000 are distributed at the end of the current year?
|
a. |
$85,500 and $136,500 |
|
b. |
$78,000 and $144,000 |
|
c. |
$60,000 and $162,000 |
|
d. |
$55,500 and $166,500 |
QUESTION # 24
49. On November 1, 2010, the Metal Construction Company declared a property dividend payable in the form of bonds held for long-term investment purposes. The bonds will be distributed to the common stockholders on December 15, 2010. The bonds to be distributed to the common stockholders originally cost Metal $210,000. Fair value of the bonds on various dates is as follows:
|
December 31, 2009 |
$220,000 |
|
November 1, 2010 |
225,000 |
|
December 15, 2010 |
230,000 |
Which one of the following amounts should be used to record the appropriate credit to Property Dividends Payable?
|
a. |
$210,000 |
|
b. |
$220,000 |
|
c. |
$225,000 |
|
d. |
$230,000 |
QUESTION # 25
51. How will a company’s total current liabilities and total stockholders’ equity be affected by the declaration of a stock dividend? (Assume the stock dividend is distributed at a later date.)
|
Total |
Total |
|
|
Current Liabilities |
Stockholders’ Equity |
|
|
I. |
increase |
decrease |
|
II. |
increase |
no effect |
|
III. |
no effect |
decrease |
|
IV. |
no effect |
no effect |
|
a. |
I |
|
b. |
II |
|
c. |
III |
|
d. |
IV |
Exhibit 17-1
The Zoeller Corporation’s stockholders’ equity accounts have the following balances as of December 31, 2010:
|
Common stock, $10 par (30,000 shares issued |
|
|
and outstanding) |
$ 300,000 |
|
Additional paid-in capital |
2,000,000 |
|
Retained earnings |
5,700,000 |
|
Total stockholders’ equity |
$8,000,000 |
|
|
QUESTION # 26
52. Refer to Exhibit 17-1. On January 2, 2011, the board of directors of Zoeller declared a 30% stock dividend to be distributed on January 31, 2011. The market price per share of Zoeller’s common stock was $30 on January 2 and $32 on January 31. As a result of this stock dividend, the retained earnings account should be decreased by
|
a. |
$ 90,000 |
|
b. |
$270,000 |
|
c. |
$288,000 |
|
d. |
zero; only a memorandum entry is required |
QUESTION # 27
54. The Martin Company’s stockholders’ equity accounts have the following balances as of December 31, 2010:
|
Common stock, $20 par (25,000 shares issued of which |
||
|
2,000 are being held as treasury stock) |
$ 500,000 |
|
|
Additional paid-in capital |
750,000 |
|
|
Retained earnings |
2,250,000 |
|
|
$3,500,000 |
||
|
Less: Treasury stock (2,000 shares at cost) |
(120,000) |
|
|
Total stockholders’ equity |
$3,380,000 |
|
On January 2, 2011, the board of directors of Martin declared a 10% stock dividend to be distributed on February 15, 2011. The market price of Martin Company’s common stock was $65 per share on January 2, 2011. On the date of declaration, the retained earnings account should be decreased by
|
a. |
zero; only a memorandum entry is required |
|
b. |
$ 50,000 |
|
c. |
$149,500 |
|
d. |
$162,500 |
QUESTION # 28
55. A dividend that represents a return of capital rather than a distribution of retained earnings is called a
|
a. |
property dividend |
|
b. |
stock dividend |
|
c. |
capital dividend |
|
d. |
liquidating dividend |
QUESTION # 29
56. When a company is determining its dividend policy, the company must adhere to legal requirements. The legal requirements are determined by the
|
a. |
Financial Accounting Standards Board (FASB) |
|
b. |
state in which the company was incorporated |
|
c. |
Securities and Exchange Commission (SEC) |
|
d. |
Federal Trade Commission (FTC) |
QUESTION # 30
57. If a company makes a prior period adjustment, which of the following describes how it must be reported?
|
a. |
The adjustment is recorded in retained earnings, and previous years’ financial statements presented for comparative purposes are not changed. |
|
b. |
The adjustment is recorded in retained earnings, and previous years’ financial statements presented for comparative purposes are adjusted. |
|
c. |
The adjustment is reported in the current period’s income statement as a separate item. |
|
d. |
The adjustment is recorded as a deferred asset or deferred liability and amortized using the straight-line method. |
QUESTION # 31
60. Which of the following could be a component of other comprehensive income (loss)?
|
a. |
realized gains or losses from sale of investments in available-for-sale securities |
|
b. |
translation adjustments from converting the financial statements of a company’s foreign operations into U.S. dollars |
|
c. |
gains (losses) on extraordinary items |
|
d. |
warranty liability adjustments |
QUESTION # 32
61. How may a corporation report its types of comprehensive income?
|
a. |
It may report the amount of accumulated other comprehensive income for each item as part of stockholders’ equity. |
|
b. |
It may report the total amount of accumulated other comprehensive income for all the items as part of stockholders’ equity. |
|
c. |
It may make footnote disclosures of totals only. |
|
d. |
It may report the amount of accumulated other comprehensive income for each item or in total as part of stockholders’ equity. |
QUESTION # 33
63. The following information is provided for the Columbus Company:
|
Deferred compensation payable-stock appreciation rights |
$ 10 |
|
Bonds payable |
120 |
|
Additional paid-in capital on common stock |
20 |
|
Donated capital |
16 |
|
Treasury stock (at cost) |
8 |
|
Common stock, $1 par |
100 |
|
Common stock option warrants |
40 |
|
Unrealized increase in value of available for sale securities |
28 |
|
Additional paid-in capital from treasury stock |
3 |
|
Retained earnings |
57 |
What is the total stockholders’ equity of Columbus Company?
|
a. |
$212 |
|
b. |
$228 |
|
c. |
$256 |
|
d. |
$272 |
|
e. |
none of these |
QUESTION # 34
65. When recording the receipt of donated assets, the credit could be to
|
a. |
Retained Earnings |
|
b. |
Donated Capital |
|
c. |
Gain on Donations |
|
d. |
a contra account to the asset |
QUESTION # 35
67. Which of the following stockholders’ equity disclosures are required under both GAAP and IFRS?
|
a. |
capital not yet paid in |
|
b. |
restrictions on the repayment of capital |
|
c. |
dividend preferences |
|
d. |
shares reserved for future issuances under sales contracts |
QUESTION # 36
68. The two defined sections of stockholders’ equity under IFRS are
|
a. |
contributed capital and other equity |
|
b. |
share capital and retained earnings |
|
c. |
contributed capital and retained earnings |
|
d. |
share capital and other equity |
QUESTION # 37
69. Differences exist between IFRS and GAAP in the reporting of EPS. Which of the following areas is not an area of difference?
|
a. |
adjustment in options calculations for unrecognized compensation cost |
|
b. |
treatment of unvested contingently issued shares |
|
c. |
treatment of dividends in arrears for convertible preferred stock |
|
d. |
treatment of contracts that may be settled in shares or for cash |
QUESTION # 38
70. Specific EPS disclosure is regularly reported for extraordinary items under
|
IFRS |
GAAP |
|
|
I. |
yes |
no |
|
II. |
no |
yes |
|
III. |
yes |
yes |
|
IV. |
no |
no |
|
a. |
I |
|
b. |
II |
|
c. |
III |
|
d. |
IV |
