Accounting 2 Chapters 12

On January 1, 2010, Edward Corporation had 10,000 shares of $6 par 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. On October 1, 2010, all of the preferred shares were converted to common. What number of shares must Edward use in computing basic earnings per share at December 31, 2010?

$17,500

At the beginning of the current year, Elite 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, declared a 10% stock dividend when the price of stock was $28 per share, and paid a year-end cash dividend of $3 per share. (The cash dividend was paid after the stock dividend had been distributed.) What was Elite Corporation's retained earnings at the end of the year?

$5,255,000. $4,800,000 + $1,675,000 - (20,000 x $28) - (220,000 x $3) = $5,255,000

On January 1, 2010, Alice Corporation had 20,000 shares of $6 par 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, 2010, none of the preferred shares had been converted. What number of shares must Alice use in computing diluted earnings per share at December 31, 2010?

$50,000

During the year 2011, Torino Corporation suffered a $1,200,000 loss when its factory was severely damaged in an earthquake. Assuming the corporate income tax rate is 30%, what amount will Torino report as an extraordinary loss on its income statement for 2010? Assume earthquakes are not common in this area.

$840,000

Family Fashions Corporation discontinued Kid-Choice, its entire line of children's clothing, in November of 2009. Prior to the disposal, Kid-Choice generated a loss of $600,000 (net of tax) for the period from January through the sale date. Because of the value of the real estate and machinery, there was a gain of $850,000 (net of tax) on the actual sale. How should this situation be reported in the financial statements of Family Fashions for 2009?

A $250,000 gain should be in the "discontinued operations" section of the income statement.

An example of an extraordinary gain or loss is

A loss due to the expropriation of assets by a foreign government.

Stock splits:

Allow management to conserve cash, give stockholders more shares, and cause no change in total assets, liabilities, or stockholders' equity

A prior period adjustment appears in the financial statements of the current year when:

An error was made in measuring the net income of a previous year or years

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?

An increase in market price of approximately $2 per share

To qualify as an extraordinary item, a gain or loss must:

Be material in amount, unusual in nature, and not expected to recur

All things being equal, if investors expect earnings to increase substantially from current levels, the price/earnings ratio will

Be quite high.

Which of the following would have no effect on Retained Earnings?

Declaration of a stock split.

Doogle Corporation sold a segment of its operations in 2009 and suffered an extraordinary loss in 2010. Which of the following would be the most useful in attempting to predict Doogle's performance for 2011?

Doogle's income from continuing operations in 2009 and 2010

Comprehensive income can be displayed to users of financial statements in which of the following way(s):

Either as a second income statement, as a single income statement that includes both the components of net income and the components of other comprehensive income, or as an element in the changes in stockholders' equity displayed as a column in the statement of stockholders' equity

Comprehensive income can be displayed to users of financial statements in which of the following way(s):

Either as a second income statement, as a single income statement that includes both the components of net income and the components of other comprehensive income, or as an element in the changes in stockholders' equity displayed as a column in the statement of stockholders' equity.

After preparing the financial statements for 2011, the accountant for the Dawson Corporation discovered that a prior period adjustment had been omitted from the 2009 financial statements. Which of the following is most likely to require correction as a result of this oversight?

Ending retained earnings at December 31, 2011

Of the items listed, which would appear closest to the bottom of the income statement?

Extraordinary items.

Earnings per share figures are shown in the income statement:

For income before extraordinary items and for income from continuing operations, as well as for net income.

The numerator in calculating earnings per share is reduced for:

Preferred dividends.

A prior period adjustment is a correction made to:

Retained earnings of the beginning of the period.

If a material accounting error was made in a prior year, that error:

Should be reflected, net of taxes, on the retained earnings statement

If a company presents both the basic and diluted earnings per share, the price/earnings ratio is based on

The basic figure.

As a result of a 5% stock dividend:

The number of shares owned by each stockholder increases by 5%, but total stockholders' equity does not change.

In computing earnings per share, the number of shares used is:

The weighted average of shares outstanding for the year

When a stock dividend is declared, total stockholders' equity will

not change