Accounting Final Ch 19-21

When computing diluted EPS, both the numerator and denominator are affected by ________. A) stock options B) stock warrants C) preferred stock D) convertible bonds

D) convertible bonds

Stock warrants outstanding should be classified as A. liabilities B. reductions of capital contributed in excess of par value C. assets D. None of these answers are correct

D. None of these answers are correct

In determining diluted earnings per share, dividends on non convertible cumulative preferred stock should be

Deducted from net income whether declared or not

When computing diluted earnings per share, convertible securities are

recognized only if they are dilutive

The prospective approach usually is required for:A) A change in estimate.B) A change in reporting entity.C) A change in accounting principle.D) A correction of an error.

A) A change in estimate. With a change in estimate, the current amounts are used to apply the new estimate this year and future years. The new estimate is not applied to previous periods.

The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements? A) Balance sheets B) Income statements C) Statements of cash flows D) Statements of retained earnings

A) Balance sheets

The fixed price paid by an employee to acquire a share of stock under an option plan is the ________. A) exercise price B) market price C) historical price D) book price

A) Exercise price

Which of the following would be classified as a financing activity on a statement of cash flows? A) Payment of a bond payable B) Sale of a loan receivable C) Payment of interest to a creditor D) Declaration and distribution of a stock dividend

A) Payment of a bond payable

Of the following questions, which one would not be answered by the statement of cash flows? A) Were all the cash expenditures of benefit to the company during the period? B) Where did the cash come from during the period? C) What was the change in the cash balance during the period? D) What was the cash used for during the period?

A) Were all the cash expenditures of benefit to the company during the period?

Edmond Biometrics experienced net income of $500,000 for both last year and the current year. The shares outstanding for the prior year was 100,000 shares for the whole year. On December 1 of the current year, Edmond declared a two for one stocksplit. There were no other stock transactions in either year. Compute the EPS that would be shown on a comparative income statement for Years 1 and 2. A) Year 1 $5.00; Year 2 $2.50 B) Year 1 $2.50; Year 2 $2.50 C) Year 1 $5.00; Year 2 $10.00 D) Year 1 $5.00; Year 2 $4.62

A) Year 1 $5.00; Year 2 $2.50 NI/ shares 500,000/100,000 =5 500,000/200,000=2.5

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by A) eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. B) estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. C) eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation. D) re-recording all income statement transactions that directly affect cash in a separate cash flow journal.

A) eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

When a potentially dilutive security is present, a company must test the security to see if it is dilutive or anti-dilutive. Anti-dilutive securities occur when the diluted EPS is ________. A) greater than the basic EPS B) less than the basic EPS C) the same as basic EPS D) either the same or less than basic EPS

A) greater than the basic EPS

When there are multiple dilutive securities in a firm, the test for the sequence should be from ________. A) most dilutive to least dilutive B) least dilutive to most dilutive C) convertibles first and warrants last D) convertibles debt first and options last

A) most dilutive to least dilutive

When computing diluted EPS, only the denominator is affected by ________. A) warrants and options B) convertible preferred stock C) preferred stock D) convertible bonds

A) warrants and options

The denominator of the basic EPS equation contains the ________. A) weighted-average shares of common stock outstanding for the year B) number of shares of common shares outstanding stock at the end of the year C) largest number of common shares outstanding during the year D) total of common and preferred shares outstanding during the year

A) weighted-average shares of common stock outstanding for the year

Retrospective restatement usually is appropriate for a change in: A) Acct Principle - Yes; Acct Estimate - Yes B) Acct Principle - Yes; Acct Estimate - No C) Acct Principle - No; Acct Estimate - Yes D) Acct Principle - No; Acct Estimate - No

B) Acct Principle - Yes; Acct Estimate - No A change in accounting principle is usually reported using a retrospective approach and a change in accounting estimate is reported using a prospective approach.

Retrospective restatement usually is not applied for a: A) Change in accounting principle. B) Change in accounting estimate. C) Change in entity. D) Correction of error.

B) Change in accounting estimate. Change is accounting estimate is reported using a prospective approach.

Which of the following is NOT true regarding the correction of an error? A) A journal entry is made to correct any account balances that are incorrect as a result of the error. B) The correction is reported prospectively; previous financial statements are not revised. C) Prior years' financial statements are restated to reflect the correction of the error (if the error affected those statements). D) A disclosure note should describe the nature of the error and the impact of its correction on net income, income before extraordinary items, and earnings per share.

B) The correction is reported prospectively; previous financial statements are not revised. The effect of the error is reported as an adjustment to beginning-of-period retained earnings and prior years' financial statements are restated.

Compensation expense associated with stock options is ________. A) based upon the book value of the options B) based upon the estimated fair value of the options C) recorded on the date that the options are granted D) allocated as expense over the time period until the options expire

B) based upon the estimated fair value of the options

When computing basic EPS, the numerator includes net income minus the ________. A) present value of stock options B) preferred dividends for cumulative preferred stock C) cost of interest paid on bonds, net of tax D) cash paid for dividends during the year

B) preferred dividends for cumulative preferred stock

At December 31, 2014, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2014. Net income for the year ended December 31, 2014, was $1,360,000. What should be Hancock's 2014 earnings per common share, rounded to the nearest penny? A) $2.69 B) $3.40 C) $3.20 D) $3.03

C) $3.20 400,000 + 100,000 (3/12) # of shares= 425,000 1,360,000 / 425,000 = 3.20

Hudson Motors reported $535,000 net income for the current year. Beginning common shares outstanding were 120,000. Hudson also had 10,000, 6% nonconvertible, cumulative, $100 par value preferred shares outstanding for the entire year. No cash dividends were declared. Compute basic earnings per share. A) $4.46 B) $4.11 C) $3.96 D) $3.65

C) $3.96 535000 (60,000) = 475000 475000/120000

When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?Direct Method Indirect Method A) Decrease Increase B) Increase Decrease C) Increase Increase D) Decrease Decrease

C) Increase Increase

Pennock Inc. has convertible preferred stock outstanding. To compute the diluted EPS, it must adjust ________. A) only the numerator B) only the denominator C) both the numerator and denominator D) neither the numerator nor the denominator

C) both the numerator and denominator Diluted Earnings Per Share = (Net Income - Preferred Stock Dividends) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Shares + Convertible Debt + Warrants).

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n) A) cash inflow from investing activities. B) addition adjustment to net income in the cash flows from operating activities section. C) cash inflow from financing activities. D) cash outflow from investing activities.

C) cash inflow from financing activities.

Which one of the following does not require the computation of diluted earnings per share? A) convertible bonds B) stock warrants C) preferred stock D) stock options

C) preferred stock

An objective of the statement of cash flows is to A) disclose changes during the period in all asset and all equity accounts. B) disclose the change in working capital during the period. C) provide information about the operating, investing, and financing activities of an entity during a period. D) None of these answers are correct.

C) provide information about the operating, investing, and financing activities of an entity during a period.

A change in the residual value of a building depreciated on a straight-line basis is: A) A change that should be reported in earnings of the period of change. B) A change reported by restating prior years' financial statements. C) An error correction. D) A change reported in the current and future periods when the change affects both.

D) A change reported in the current and future periods when the change affects both.

Early in 2016, Brandon Transport discovered that a five-year insurance premium payment of $250,000 at the beginning of 2013 was debited to insurance expense. The correcting entry would include: A) A debit to prepaid insurance of $250,000. B) A debit to insurance expense of $100,000. C) A debit to prepaid insurance of $150,000. D) A credit to retained earnings of $100,000.

D) A credit to retained earnings of $100,000. D: Prepaid Insurance C: RE

Blair Pen Company overstated its inventory by $10 million at the end of 2016. The discovery of this error during 2017, before adjusting or closing entries, would require: A) A debit to inventory of $10 million. B) A prospective adjustment in the 2017 income statement. C) An increase in retained earnings. D) None of the above.

D) None of the above. Retained earnings would be debited for $10 million, and inventory would be credited for $10 million.

Which of the following is not a characteristic of a restricted stock plan?A) The employee cannot sell the awarded shares until the vesting period has expired. B) A restricted stock plan has value as long as the underlying shares are selling above zero. C) Restricted shares are not stock options. D) The employee is taxed on the stock award when it is granted.

D) The employee is taxed on the stock award when it is granted.

The primary purpose of the statement of cash flows is to provide information A) about the entity's ability to meet its obligations and to pay dividends. B) about the operating, investing, and financing activities of an entity during a period. C) that is useful in assessing future cash flow prospects. D) about the cash receipts and cash payments of an entity during a period.

D) about the cash receipts and cash payments of an entity during a period.

When computing diluted earnings per share, convertible bonds are A) ignored. B) assumed converted whether they are dilutive or anti-dilutive. C) assumed converted only if they are anti-dilutive. D) assumed converted only if they are dilutive.

D) assumed converted only if they are dilutive.

When applying the if-converted assumption for potentially diluted securities, conversions are assumed to occur at the ________. A) end of the prior year for hypothetical conversions B) beginning of the year for hypothetical conversions C) middle of the current year for actual conversions D) at the beginning of the current year or on the issue date of the dilutive security if issued during the year

D) at the beginning of the current year or on the issue date of the dilutive security if issued during the year Assumed to have occurred at the beginning of the current year or issue date if issued

The retroactive assumption for stock dividends and splits helps financial statement users to ________. A) recompute their net worth in the company B) be assured that management is effective C) hold management accountable for poor timing in the decision D) compare the company's EPS changes over time

D) compare the company's EPS changes over time

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are A) weighted by the number of days outstanding. B) weighted by the number of months outstanding. C) considered outstanding at the beginning of the year. D) considered outstanding at the beginning of the earliest year reported.

D) considered outstanding at the beginning of the earliest year reported.

The treasury stock method is used when the organizational structure includes ________. A) convertible preferred stock B) convertible bonds C) only stock options D) stock options or warrants

D) stock options or warrants

28. An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n) a. addition to net income in arriving at net cash flow from operating activities. b. deduction from net income in arriving at net cash flow from operating activities. c. cash outflow from investing activities. d. cash outflow from financing activities.

b. deduction from net income in arriving at net cash flow from operating activities.