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| 1 | |
Which of the following categories of events require special treatment when reporting the results of operations? |
| | A) | The results of discontinued operations |
| | B) | Losses from continue operations |
| | C) | The impact of extraordinary items |
| | D) | Both (A) and (C) |
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| 2 | |
The special items reported in the income statement are, in no particular order, (1) Discontinued operations, (2) Extraordinary items, and (3) Income from continued operations. Which is the proper order for presenting these special items in the financial statements? |
| | A) | 1, 3, 2 |
| | B) | 1, 2, 3 |
| | C) | 3, 2, 1 |
| | D) | 3, 1, 2 |
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| 3 | |
A company had a $230,000 operating loss on discontinued operations of one of its production segments. The income tax benefit from the loss was $103,000. The gain on the sale of the production segment was $150,000, net of $50,000 income taxes. What amount would be reported as the net result of discontinued operations? |
| | A) | $127,000 |
| | B) | $150,000 |
| | C) | $23,000 |
| | D) | $183,000 |
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| 4 | |
Which of the following events would be considered an extraordinary event for a company located in Montana that produces and sells camping tents? |
| | A) | An earthquake |
| | B) | Material (significant) loss from theft |
| | C) | Losses from tent inventory declared unsafe by an agency of the federal government |
| | D) | All of the above |
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| 5 | |
How does the accounting profession define extraordinary items? |
| | A) | As being at the discretion of the reporting entity |
| | B) | In such a way as to intend to make them quite rare |
| | C) | In a comprehensive list of extraordinary items prepared by the FASB |
| | D) | As resulting only from discontinued operations |
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| 6 | |
Restructuring costs are reported as which of the following? |
| | A) | A deduction in arriving at operating income |
| | B) | An extraordinary item |
| | C) | An unusual and extraordinary item |
| | D) | A deduction in arriving at taxable income |
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| 7 | |
The company had 48,000 shares outstanding for the first two months of the year, 66,000 shares outstanding for the next three months of the year, and 72,000 shares outstanding for the last seven months of the year. There were 5,000 of $8 noncumulative preferred shares outstanding during the year. Net income was $339,150. Calculate the earnings per share of common stock to the nearest cent. |
| | A) | $5.23 |
| | B) | $4.62 |
| | C) | $5.67 |
| | D) | $5.10 |
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| 8 | |
The company had 48,000 shares outstanding for the first two months of the year, 60,000 shares outstanding for the next three months of the year, and 72,000 shares outstanding for the last seven months of the year. There were 5,000 of $8 cumulative preferred shares outstanding during the year. Net income was $340,000. Calculate the earnings per share of common stock to the nearest cent. |
| | A) | $5.23 |
| | B) | $4.62 |
| | C) | $5.67 |
| | D) | $5.00 |
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| 9 | |
The current market price of a share of Isenberger Company's common stock is $25, the par value of the common stock is $2 per share, the current earnings per share are $0.50, and there are 250,000 shares of common stock outstanding. Compute the price earnings ratio. |
| | A) | 5 |
| | B) | 12.5 |
| | C) | 50 |
| | D) | 8 |
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| 10 | |
Which of the following is true about diluted earnings per share? |
| | A) | It alerts common stockholders to what could have happened. |
| | B) | It is computed as if convertible preferred stock has been converted. |
| | C) | It represents a hypothetical case. |
| | D) | All of the above are true about diluted earnings per share. |
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| 11 | |
Which of the following are requirements for the payment of a cash dividend? |
| | A) | Adequate retained earnings to absorb the dividend without creating a deficit in retained earnings. |
| | B) | Adequate cash on hand at the date of payment |
| | C) | Approval by the stockholders |
| | D) | Both (A) and (B). |
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| 12 | |
A cash dividend was paid on March 15. The date of record was February 25, which was a Monday. What was the ex-dividend date? |
| | A) | February 22 |
| | B) | February 21 |
| | C) | February 20 |
| | D) | February 28 |
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| 13 | |
The ex-dividend date is of significance primarily to whom? |
| | A) | The transfer agent and stock registrar. |
| | B) | Current and potential Common stockholders. |
| | C) | Preferred stockholders. |
| | D) | The board of directors. |
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| 14 | |
The declaration of a cash dividend will ultimately require which of the following? |
| | A) | An adjusting entry at the end of the accounting period |
| | B) | A closing entry to the Retained Earnings account |
| | C) | A closing entry to the Income Summary account |
| | D) | A closing entry to the Additional Paid-in Capital: Common Stock account |
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| 15 | |
Which of the following is true about a liquidating dividend? |
| | A) | It occurs when a dividend exceeds the balance in the Retained Earnings account. |
| | B) | It occurs when dividends exceed net income. |
| | C) | It occurs when the corporation goes out of business. |
| | D) | Both (A) and (C). |
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| 16 | |
On July 1, Penryn Corporation has outstanding 150,000 shares of $10 par common stock with a market value of $24 per share. On this date, the company declares a 12% stock dividend, distributable on August 15 to stockholders of record on July 20. The entry on July 1 would include which of the following? |
| | A) | A debit to Retained Earnings for $180,000. |
| | B) | A credit to Stock Dividend to be Distributed, $180,000. |
| | C) | A credit to Additional Paid-in Capital Stock Dividends, $252,000. |
| | D) | Both (B) and (C). |
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| 17 | |
On July 1, ABC Corporation has outstanding 150,000 shares of $10 par common stock with a market value of $24 per share. On this date, the company declares a 40% stock dividend, distributable on August 15 to stockholders of record on July 20. As a result of the stock dividend, which of the following has occurred? |
| | A) | The par value of the stock decreased to $6 per share |
| | B) | The par value of the stock changed to $14 per share |
| | C) | The outstanding shares increased 60,000 shares |
| | D) | Both (A) and (C) |
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| 18 | |
On July 1, Rebel Ridge Corporation has outstanding 150,000 shares of $10 par common stock with a market value of $24 per share. There is no preferred stock. Total stockholders' equity is $1,200,000. On this date, the company declares a 10% stock dividend, distributable on August 15 to stockholders of record on July 20. Prior to the stock dividend, you held 5,000 shares of the common stock. As a result of the stock dividend, how was your ownership in the company affected? |
| | A) | It remained unchanged. |
| | B) | It increased 10%, or $120,000. |
| | C) | It increased $12,000. |
| | D) | It increased $5,000. |
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| 19 | |
A company has 100,000 shares of $10 par value common shares outstanding. The company declares a 4-for1 stock split. As a result, which of the following will occur? |
| | A) | Par value will become $2.50 and shares outstanding will be 400,000. |
| | B) | Par value per share will remain unchanged and shares outstanding will be 400,000. |
| | C) | Par value will become $2.50 and shares outstanding will not change. |
| | D) | Par value will become $40.00 and shares outstanding will be 25,000. |
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| 20 | |
Which of the following is false? |
| | A) | A stock dividend is usually intended as a substitute for a cash dividend. |
| | B) | Stock splits have intent of reducing the market price of the stock. |
| | C) | Stock splits result in a per share reduction in the par value of the stock. |
| | D) | Stock dividends result in a pro rata reduction in the par value of stock. |
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| 21 | |
Consider the following information:
| Beginning retained earnings | $450,000 | | Net loss for the period | ($50,000) | | Cash dividends declared on common stock | $60,000 | | Cash dividends declared on preferred stock | $80,000 | | Stock dividend, 10% of common shares | $120,000 | | Prior period adjustment, net of taxes | ($30,000) |
What is the ending balance of retained earnings in a Statement of Retained Earnings prepared from the information above? |
| | A) | $170,000 |
| | B) | $110,000 |
| | C) | $140,000 |
| | D) | $230,000 |
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| 22 | |
Prior period adjustments occur as a result of which of the following? |
| | A) | Extraordinary gains or losses |
| | B) | Discontinued operations |
| | C) | Material errors in the reporting of income in a prior period |
| | D) | Issuing large stock dividends after declaring a cash dividend |
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| 23 | |
Which is more likely to appear in the financial statements of a closely held corporation but not in a large, publicly owned corporation? |
| | A) | Prior period adjustments |
| | B) | Cash dividends |
| | C) | Stock dividends |
| | D) | Treasury stock. |
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| 24 | |
Restrictions of retained earnings are: |
| | A) | incurred as a result of prior period adjustments. |
| | B) | sometimes required by long-term credit obligations to insure payment of debt. |
| | C) | included in comprehensive income. |
| | D) | always recorded as deductions to the Retained Earnings account. |
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| 25 | |
Which of the following changes in financial position, as identified by the FASB, should be recorded but should not enter into the determination of net income? |
| | A) | Events that are recognized but not realized. |
| | B) | Events that are recognized and realized. |
| | C) | Events that are realized but not recognized. |
| | D) | Events that are not realized or recognized. |
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| 26 | |
Consider the following:
| Transaction | Cash Flow | | Beginning balance, total stockholders' equity | $4,500,000 | | Prior period adjustment increase of $50,000 (net of $10,000 taxes) | None | | Issued 100,000 shares of $5 par common stock at $25 per share | $2,500,000 | | Distributed 10% stock dividend (1,500 shares at $80 market price) | None | | Reported current year net income of $900,000 | Unknown | | Paid cash dividends, common stock | $400,000 | | Paid cash dividends, preferred stock | $200,000 |
Calculate the ending balance of total stockholders' equity. |
| | A) | $7,130,000 |
| | B) | $7,300,000 |
| | C) | $4,800,000 |
| | D) | $7,010,000 |
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| 27 | |
Consider the following:
| Transaction | Cash Flow | | Beginning balance, total stockholders' equity | $4,500,000 | | Prior period adjustment increase of $50,000 (net of $10,000 taxes) | None | | Issued of 100,000 shares of $5 par common stock at $25 per share | $2,500,000 | | Distributed 10% stock dividend (1,500 shares at $30 market price) | None | | Reported current year net income of $900,000 | Unknown | | Paid cash dividends, common stock | $400,000 | | Paid cash dividends, preferred stock | $200,000 |
Assume the beginning balance of the Retained Earnings account is $900,000. Calculate the ending balance of Retained Earnings. |
| | A) | $1,150,000 |
| | B) | $1,105,000 |
| | C) | $1,600,000 |
| | D) | $1,750,000 |
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| 28 | |
Which of the following is the most common objective for engaging in inappropriate financial reporting? |
| | A) | Overstating net income |
| | B) | Increasing perceived goodwill |
| | C) | Increasing cash flows |
| | D) | Maintaining customer relations |
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| 29 | |
Which of the following is true regarding marketing and sales personnel of customers who falsely confirm to the external auditors of the seller that they owe amounts that are in fact not owed? |
| | A) | Such behavior is not considered a crime. |
| | B) | The customer's representatives cannot be prosecuted for giving false confirmations. |
| | C) | The U.S. Department of Justice is more likely to prosecute individuals for this behavior than it has in the past. |
| | D) | Such behavior is expected and accepted. |
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