When computing earnings per share
1. When computing earnings per share on common stock, dividends on cumulative, nonconvertible preferred stock should be:
A. deducted from net income only if the dividends were declared or paid in the current period.
B. deducted from net income regardless of the whether the dividends were not paid or declared in the period.
C. deducted from net income only if net income is greater than the dividends.
2. Lexicon, Inc. bought a patent for $600,000 on January 2, 1997, at which time the patent had an estimated useful life of 10 years. On February 2, 2000, it was determined that the patent?s useful life would expire at the end of 2003. How much would Lexicon record as amortization expense for this patent for the year ending December 31, 2001?
3. Millward Corporation?s books disclosed the following information for the year ended December 31, 2002:
Net credit sales $1,500,000
Net cash sales 240,000
Accounts receivable at beginning of year 200,000
Accounts receivable at end of year 400,000
Millward?s accounts receivable turnover is
A. 3.75 times
B. 4.35 times
C. 5.00 times
D. 5.80 times
4. The EPS computation that is forward looking and based on assumptions about future transactions is:
A. diluted EPS
B. basic EPS
C. continuing operations EPS
D. extraordinary EPS
5. On December 31, 2002, Buckeye Corporation appropriately changed its inventory valuation method to FIFO cost from LIFO cost for both financial statement and income tax purposes. The change will result in a $140,000 increase in the beginning inventory at January 1, 2002. Assume a 30 percent income tax rate. The cumulative effect of this accounting change Buckeye should report for the year ended December 31, 2002, is:
6. Kentucky Enterprises purchased a machine on January 2, 2002, at a cost of $120,000. An additional $50,000 was spent for installation, but this amount was charged erroneously to repairs expense. The machine has a useful life of five years and a savage value of $20,000. As a result of the error,
A. retained earnings at December 31, 2003, were understated by $30,000 and 2003 income was overstated by $6,000
B. retained earnings at December 31, 2003, were understated by $38,000 and 2003 income was overstated by $6,000
C. retained earnings at December 31, 2003, were understated by $30,000 and 2003 income was overstated by $10,000
D. 2002 income was understated by $50,000
7. For purposes of computing the weighted average number of shares outstanding during the year, a midyear event that must be treated as occurring at the beginning of the year is the
A. declaration and payment of a stock dividend
B. purchase of treasury stock
C. sale of additional common stock
D. issuance of stock warrants
8. At the time Fisher Corporation became a subsidiary of Ashbury Corporation, Fisher switched depreciation of its plant assets from the straight-line method to the sum-of-the-years?-digits method used by Ashbury. With respect to Fisher, this change was a
A. change in an accounting estimate
B. correction of an error
C. change in accounting principle
D. change in the reporting entity
9. During the year, The Grap Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?
10. At December 31, 2002 and 2001, Lapham Corp. had 200,000 shares of common stock and 20,000 shares of 5 percent, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2002 or 2001. Net income for 2002 was $1,000,000. For 2002, basic earnings per common share amounted to
11. Barker, Inc. receives subscription payments for annual (one year) subscriptions to its magazine. Payments are recorded as revenue when received. Amounts received but unearned at the end of each of the last three years are shown below:
2000 2001 2002
Unearned revenues $120,000 $150,000 $176,000
Barker failed to record the unearned revenues in each of the three years. Which entry is needed in 2002 to correct the above errors?
A. Retained Earnings $150,000
Subscription Revenues $ 26,000
Unearned revenues $176,000
B. Retained Earnings $30,000
Subscription Revenues $26,000
Unearned revenues $56,000
C. Subscription Revenues $176,000
Unearned revenues $176,000
D. Subscription Revenues $150,000
Retained Earnings $ 26,000
Unearned revenues $176,000
12. Selected information from the accounting records of Ellison Manufacturing Company follows:
Net sales $3,600,000
Cost of goods sold 2,400,000
Inventories at January 1 672,000
Inventories at December 31 576,000
What is the number of days? sales in average inventories for the year?
13. The Thomas Company?s net income for the year ended December 31 was $30,000. During the year, Thomas declared and paid $3,000 in cash dividends on preferred stock and $5,250 in cash dividends on common stock. At December 31, 36,000 shares of common stock were outstanding, 30,000 of which had been issued and outstanding throughout the year and 6,000 of which were issued on July 1. There were no other common stock transactions during the year, and there?s no potential dilution of earnings per share. What should be the year?s basic earnings per common share of Thomas, rounded to the nearest penny?
14. Which of the following should be reported as a change in accounting estimate?
A. Change in the reported beginning inventory amount due to a discovery of a bookkeeping error
B. Change from the completed-contract method to the percentage-of-completion method for revenue recognition on long-term construction contracts
C. Increase in the rate applied to net credit sales from 1 percent to 1 1 percent in determining losses from uncollectible receivables
D. Change made to comply with a new FASB pronouncement
15. A useful tool in financial statement analysis is the ?common-size? financial statement. What does this tool enable the financial analyst to do?
A. Evaluate financial statements of companies within a given industry of approximately the same value
B. Determine which companies in the same industry are at approximately the same stage of development
C. Ascertain the relative potential of companies of similar size in different industries
D. Compare the mix of assets, liabilities, capital, revenue and expenses within a company over time or between companies within a given industry without respect to relative size.
16. Glendale Enterprises had 200,000 shares of common stock issued and outstanding at December 31, 2001. On July 1, 2002, Glendale issued a 10 percent stock dividend. Unexercised stock options to purchase 40,000 shares of common stock (adjusted for the 2002 stock dividend) at $20 per share were outstanding at the beginning and end of 2002. The market price of Glendale?s common stock (which wasn?t affected by the stock dividend) was $25 per share during 2002. Net income for the year ended December 31, 2002, was $1,100,000. What should be Glendale?s 2002 diluted earnings per common share, rounded to the nearest penny?
17. At December 31, 2001, Lefton, Inc. had 600,000 shares of common stock outstanding. On April 1, 2001, an additional 180,000 shares of common stock were issued for cash. Lefton also had $5,000,000 of 8% convertible bonds outstanding at December 31, 2002, which are convertible into 150,000 shares of common stock. The bonds are dilutive in the 2002 EPS computation. No bonds were issued or converted into common stock during 2002. What is the number of shares that should be used in computing basic earnings per share for 2002?
18. Zacor Incorporated has 2,500,000 shares of common stock outstanding on December 31, 2001. An additional 500,000 shares of common stock were issued April 1, 2002, and 250,000 more on July 1, 2002. On October 1, 2002, Zacor issued 5,000, $1,000 face value, 7 percent convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2002. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively?
A. 2,875,000 and 2,925,000
B. 2,875,000 and 3,075,000
C. 3,000,000 and 3,050,000
D. 3,000,000 and 3,200,000
19. Tyson Company bought a machine on January 1, 2000, for $24,000, at which time it had an estimated useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson?s depreciable assets. On January 1, 2002, the machine?s estimated useful life was determined to be only six years from the acquisition date. Accordingly, the appropriate accounting change was made in 2002. Tyson?s income tax rate was 40 percent in all the affected years. In Tyson?s 2002 financial statements, how much should be reported as the cumulative effect on prior years because of the change in the estimated useful life of the machine?
20. Shoemaker Company had 1,000 common shares issued and outstanding at January 1. During the year, Shoemaker also had the common stock transactions listed below:
April 1 Issued 300 previously unissued shares
May 1 Split the stock 2-for-1
June 30 Purchased 100 shares for the treasury
July 30 Distributed a 20 percent stock dividend
December 31 Split the stock 3-for-1
Given this information, what is the weighted average number of shares that Shoemaker should use for earnings per share purposes?