ACCT 304 Exam #2 (EPS and Leases)

Loyola Co. is the lessor in connection with an operating lease less than 1 year. Loyola Co. would record: A. Depreciation expense. B. A right-of-use asset. C. Amortization expense. D. Interest revenue.

A. Depreciation expense.

When computing earnings per share, noncumulative preferred dividends not declared should be: A. Ignored. B. Deducted from earnings for the year. C. Added to earnings for the year. D. Deducted, net of tax effect, from earnings for the year.

A. Ignored.

Exelon Co. is the lessor in a six-year lease that the lessor classifies as a sales-type lease. The lease payments begin December 31, 2018. The agreement specifies that JBL Corp. makes equal annual lease payments on December 31 of each year. In its 2019 income statement: A. JBL will report interest expense and depreciation/amortization expense. B. JBL will report interest expense and lease expense. C. Exelon will report interest revenue and depreciation expense. D. Exelon will report interest revenue and amortization expense.

A. JBL will report interest expense and depreciation/amortization expense.

Which of the following will require a recalculation of weighted-average shares outstanding for all years presented? A. Stock dividends and stock splits. B. Stock dividends but not stock splits. C. Stock splits but not stock dividends. D. Issuance of convertible preferred stock.

A. Stock dividends and stock splits.

When we assume conversion of convertible bonds, the numerator is increased by: A. The amount of after-tax interest. B. The gross amount of interest. C. The weighted-average interest. D. The amount of cash paid during the current year for interest.

A. The amount of after-tax interest.

In a finance lease: A. The lessee records an asset and a liability for the present value of lease payments. B. The lessor records an asset and a liability for the present value of lease payments. C. The lessee records an asset and a liability for the total of the lease payments. D. The lessor records an asset and a liability for the total of the lease payments.

A. The lessee records an asset and a liability for the present value of lease payments.

In an operating lease that is longer than 1 year but does not meet the criteria for being recognized as a finance lease: A. The lessee records an asset and a liability for the present value of lease payments. B. The lessor records a receivable for the present value of lease payments. C. The lessee records an asset and a liability for the total of the least payments. D. The lessor records interest revenue.

A. The lessee records an asset and a liability for the present value of lease payments.

In a finance lease, the depreciation/amortization of the right-of-use asset in the third year is: A. The same as in the fourth year. B. Zero. C. Less than in the fourth year. D. More than the fourth year.

A. The same as in the fourth year.

Barr Corp. is the lessee in a finance lease. Barr would record: A. Unearned interest revenue. B. A right-of-use asset. C. Lease/Rent expense. D. Interest revenue.

B. A right-of-use asset.

When we take into account the dilutive effect of convertible securities in the calculation of diluted EPS, the method used is called the: A. Treasury stock method. B. If converted method. C. Optional method. D. Dilutive method.

B. If converted method.

For the lessor, a guaranteed residual value at the beginning of a finance lease should be: A. Excluded from lease payments. B. Included as part of lease payments at present value. C. Included as part of lease payments at future value. D. Included as part of lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value.

B. Included as part of lease payments at present value.

In connection with a lease of more than 12 months, the lessee always will record each of the following except: A. An asset. B. Interest revenue. C. An expense. D. A liability.

B. Interest revenue.

Cook the Books is the lessee in a lease agreement. From the perspective of the lessee, the lease may be classified as: A. Operating, sales-type, indirect financing. B. Operating or finance. C. Operating or sales-type. D. Operating, finance, or sales-type.

B. Operating or finance.

How many types of potential common shares must a corporation have in order to be said to have a complex capital structure? A. 3. B. 2. C. 1. D. 0.

C. 1.

Omega leased a machine for a ten-year non-cancelable term. At the end of the ten-year term, Omega has five consecutive one-year renewal options. A replacement machine can be acquired at the end of the term for the leased machine, but due to an expensive installation process and Omega's lease term for its store, Omega expects to lease the machine for 12 years. What is the lease term? A. 10 years. B. 11 years. C. 12 years. D. 15 years.

C. 12 years.

In an operating lease that is longer than 1 year but does not meet the criteria for being recognized as a finance lease, the depreciation/amortization of the right-of-use asset in the third year is: A. The same as in the fourth year. B. Zero. C. Less than in the fourth year. D. More than in the fourth year.

C. Less than in the fourth year.

A simple capital structure might typically include: A. Stock options. B. Convertible bonds. C. Nonconvertible preferred stock. D. Convertible preferred stock.

C. Nonconvertible preferred stock.

ABC Enterprises is the lessor in a lease agreement. From the perspective of the lessor, the lease may be classified as: A. Operating, sales-type, indirect financing. B. Operating or finance. C. Operating or sales-type with or without a selling profit. D. Operating, finance, or sales-type.

C. Operating or sales-type with or without a selling profit.

In connection with a lease transaction, the lessor would not record: A. An asset. B. Depreciation. C. Interest revenue. D. A liability.

D. A liability.

Preferred dividends are subtracted from earnings when computing earnings per share whether or not the dividends are declared or paid if the preferred stock is: A. Callable. B. Convertible. C. Participating. D. Cumulative.

D. Cumulative

The single accounting number in the annual report that receives the most attention by investors is: A. Total revenue B. Book value per share C. Equity per share D. Earnings per share

D. Earnings per share

Loyola declared and paid cash dividends in January of the current year to its common shareholders. The dividend: A. Will be added to the denominator of the earnings per share function for the current year. B. Will be added to the denominator of the earnings per share fraction for the current year. C. Will be subtracted from the numerator of the earnings per share fraction for the current year. D. Has no effect on the earnings per share for the coming year.

D. Has no effect on the earnings per share for the coming year.

All other things equal, what is the effect on earnings per share when a corporation acquires shares of its own stock on the open market? A. Decrease. B. No effect if the shares are held as treasury shares. C. Increase only if the shares are acquired and retired. D. Increase.

D. Increase.

Interest expense is not calculated as the effective interest rate times the amount of the debt outstanding during the interest period for: A. Bonds payable. B. Notes payable. C. Lease payable. D. Lease receivable.

D. Lease receivable.

When several types of potential common shares exist, the one that enters the computation of diluted EPS first is the one with the: A. Highest incremental EPS. B. Higher numerator. C. Median incremental EPS. D. Lowest incremental EPS.

D. Lowest incremental EPS.

In a ten-year finance lease agreement, the portion of the periodic lease payment that represents interest in the third year is: A. The same as in the fourth year. B. The same as in the first year. C. Less than in the fourth year. D. More than in the fourth year.

D. More than in the fourth year.

Nonconvertible bonds affect the calculation of: A. Basic earnings per share. B. Diluted earnings per share. C. Both A and B. D. None of the above is correct.

D. None of the above is correct.

Basic and diluted earnings per share data are required to be reported: A. Only in the footnotes to the financial statements. B. Only if they add to the relevance of the income statement. C. Only in the Management Discussion and Analysis (MD&A) section of the annual report. D. On the face of the income statement.

D. On the face of the income statement.

Which of the following is not a potential common stock? A. Convertible preferred stock. B. Convertible bonds. C. Stock options. D. Participating preferred stock.

D. Participating preferred stock.

Basic earnings per share is computed using: A. The actual number of common shares outstanding at the end of the year. B. A weighted-average of preferred and common shares. C. The number of common shares outstanding plus the effects of common stock equivalents. D. Weighted-average common shares outstanding for the year.

D. Weighted-average common shares outstanding for the year.