Ch 12 Accounting 281

A prior period adjustment to retained earnings is made when a discovery of a material error was made to prior years' income true/false

true

Large stock dividends tend to keep stock prices down true/false

true

Non-recurring items that are unusual and infrequent and the results of discontinued operations are shown in the income statement net of any related income tax effects true/false

true

Prior period adjustments are shown in the financial statements by adjusting the beginning balance of retained earnings in the statement of retained earnings true/false

true

Stock dividends and stock splits do not cause a change in the total amount of stockholders' equity true/false

true

The FASB has not compiled a comprehensive list of what is considered to be unusual and/or infrequent items; thus the determination is a matter of judgment true/false

true

The amount transferred out of retained earnings when a 4% stock dividend is declared is equal to the prevailing market value per share times the number of dividend shares to be distributed true/false

true

The statement of stockholders' equity discloses the amount of cash dividends as well as stock dividends declared during the current year true/false

true

When a corporation present both basic and diluted earnings per share, basic earnings per share will be the smaller of the two figures true/false

false

A statement of stockholders' equity is not a required financial statement and need not be prepared along with a statement of retained earnings true/false

true

A stock dividend provides a stockholder with more shares of stock, but his or her percentage of ownership in the company is no larger than before true/false

true

A stock split changes the par value of a stock, whereas a stock dividend does not true/false

true

According to the Sarbanes-Oxley Act, lying to an external auditor can create a criminal penalty as well as a civil penalty true/falase

true

Comprehensive income differs from net income in that it includes events that are recognized but not realized true/false

true

Diluted earnings per share represents a hypothetical case, showing what earnings per share would be if certain securities were converted into additional shares of common stock true/false

true

Earnings per share is equal to net income applicable to common stock, divided by the weighted number of common shares outstanding true/false

true

In an attempt to appeal to investors, a company may be tempted to overstate net income true/false

true

In determining earnings per share when a preferred stock has dividends in arrears, only the current year's dividend is deducted to arrive at earnings per share true/falase

true

When a small (under 10%) stock dividend is declared, the market value of the stock is transferred from retained earnings into other stockholder equity accounts true/false

true

While the price-earnings ratio is computed using historical earnings, it reflect investors' expectations of future earnings true/false

true

The date on a statement of retained earnings is at a point in time, such as, at December 31, 2018 true/false

false

National Corporation was organized on January 1 and issued 600,00 shares of common stock on that date. On July 1, and additional 200,000 shares were issued for cash. Net income for the year was $3,675,000. Net earnings per share amounted to: a) $5.25 b) $6.13 c) $4.59 d) $9.19

a) $5.25 (600,000 x 6/12) + (800,000 x 6/12) = 700,000 3,675,000 / 700,000 = 5.25

Dividends become a liability of a corporation: a) on the date the board of directors declares the dividend b) on the date of record c) on the date payment is to be made d) when cumulative preferred stock dividends are in arrears

a) on the date the board of directors declares the dividend

At the beginning of the current year, Wilson Corporation had 200,000 shares of $1 par common stock outstanding and had retained earnings of $4,800,000. During the year, the company earned $1,675,000 and paid a year-end cash dividend of $3 per share. What was Wilson Corporation's retained earnings at the end of the year? a) $6,275,000 b) $5,875,000 c) $6,475,000 d) $4,800,000

b) $5,875,000 200,000 x 3 = 600,000 1,675,000 - 600,000 = 1,075,000 1,075,000 + 4,800,000 = 5,875,000

The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings (i.e., at a p/e ratio of 20). What would be the most likely effect of a 10-cent increase in Securetech's basic EPS? a) an increase in the market price of approximately 10 cents per share b) an increase in market price of approximately $2 per share c) a reduction in the p/e ratio due to the larger EPS d) nothing, since market price reflects expectations of future earnings

b) an increase in market price of approximately $2 per share

If a material accounting error was made in a prior year, that error: a) should be reflected on the current year's income statement b) should be reflected, net of taxes, on the retained earnings statement c) should be reflected as a change in accounting principle d) should be considered as a non-recurring item, and shown, net of taxes, on the income statement

b) should be reflected, net of taxes, on the retained earnings statement

The expropriation (seizure of) of a multinational company's assets by a government is an example of a discontinued operation item true/false

false

For the current year, Voque Company reported basic earnings per share of $8 and diluted earnings per share of $3. The difference between these figures is attributable to outstanding shares of convertible preferred stock. If all this preferred stock had actually been converted into common stock at the beginning of the current year, Voque Company would have reported only one earnings per share amount, which would have been: a) $8 b) $5 c) $3 d) cannot be determined

c) $3

A company had 125,000 shares of common stock outstanding on January 1 and then sold 35,000 additional shares on March 30. Net income for the year was $594,750. What are earnings per share? a) $4.73 b) $4.58 c) $3.93 d) $6.61

c) $3.93 125,000 x 3/12 + 160,000 x 9/12 = 151,250 594,750 / 151,250 = $3.93

As a result of a 5% stock dividend: a) total stockholders' equity decreases by 5% b) the par value per share decreases by 5% c) the number of shares owned by each stockholder increases by 5%, but total stockholders' equity does not change d) both the number of shares outstanding and total stockholders' equity increase by 5%

c) the number of shares owned by each stockholder increases by 5%, but total stockholders' equity does not change

On January 1, 2018, Alice Corporation had 20,000 shares of $6 value common stock and 10,000 shares of 8%, $100 par value convertible preferred stock outstanding. The preferred shares carried a 3-for-1 conversion privilege. As of December 31, 2018, none of the preferred shares had been converted. What number of shares must Alice use in computing diluted earnings per share at December 31, 2018? a) 10,000 b) 20,000 c) 30,000 d) 50,000

d) 50,000 20,000 + (10,000 x 3) = 50,000

Treasury stock appears as: a) an asset account b) a liability account c) an expense account d) an equity account

d) an equity account

An unusual and infrequent item (a non-recurring item) appears on the income statement before the section on discontinued operations true/false

false

Comprehensive income is a component of net income

false

Comprehensive income may be presented in a statement with net income, in a separate statement, or as part of the notes to the financial statements true/false

false

Diluted earnings per share are shown to alert investors that earnings per share could increase by the effects of conversions of securities into common stock true/false

false

Discontinued operations is an example of an unusual and/or infrequent item true/false

false

Discontinued operations should be shown on the statement of retained earnings net of taxes true/false

false

In order for a loss on the disposal of a discontinued operation to be classified on the income statement as a discontinued operation, it must be unusual in nature true/false

false

In order to receive a dividend, a stockholder must have owned the stock as of the declaration date true/false

false

Prior period adjustments appear in the statement of retained earnings and in the income statement for the current year true/false

false

Stock splits are always in a 2-for-1 ratio true/false

false

Recent rulings by the SEC now require all corporations to prepare an expanded version of the statement of retained earnings showing all equity accounts and their changes for the last three years true/false

false

The amount of cash dividends paid to common stockholders is part of the computation of earnings per share true/false

false