Deck 5: Corporate Reporting: Income, earnings Per Share, and Retained Earnings

Question 1

If a company's activities include operations that are being discontinued,the income or loss effects of the discontinued operations are included on the income statement in income from continuing operations.

Answer 1

False

Question 2

Share dividends are recorded at market value.

Answer 2

True

Question 3

A share split decreases the market price of the company shares.

Answer 3

True

Question 4

The statement of comprehensive income is a detailed statement of net income plus or minus any other comprehensive income items.

Question 5

A share split is the distribution of additional shares to shareholders according to their percent of ownership.

Question 6

Earnings per share is the amount of income earned by each share of a company's outstanding common shares.

Question 7

A share dividend reduces a corporation's assets and equity.

Question 8

A share dividend capitalizes retained earnings because it decreases a company's contributed capital.

Question 9

A share dividend reduces the number of previously outstanding shares.

Question 10

A share dividend increases the number of previously outstanding shares.

Question 11

A share dividend is a distribution of corporate assets as a dividend that returns part of the original investment to shareholders.

Question 12

A 10% share dividend increases the number of outstanding shares.

Question 13

A reverse share split reduces the market value of shares and the par value per share.

Question 14

The journal entry to record $25,000 market value in share dividends on the date of declaration can be a debit to share dividends and a credit to common share dividends distributable.

Question 15

A share dividend is a corporation's distribution of its own shares to its shareholders without receiving any payment in return.

Question 16

A share dividend is not a liability on the balance sheet because it does not require a distribution of assets.

Question 17

Earnings per share is calculated by dividing the number of common shares outstanding by net income.

Question 18

A cash dividend does not reduce a corporation's assets or equity,while a share dividend reduces both.

Question 19

A share split affects total equity as reported on the balance sheet.

Question 20

The journal entry to record $10,000 in a share dividend on the declaration date can include a debit to cash dividends declared and a credit to dividends payable.

Question 21

When a corporation calls in its outstanding shares and issues more than one new share in exchange for each old share,this is a:

A)Share split.
B)Share dividend.
C)Cash dividend.
D)Reverse share split.
E)Liquidating dividend

Question 22

Failure to record the declaration and distribution of a share dividend would

A)Have no effect on total equity
B)Cause the outstanding shares to exceed the equity
C)Cause an understatement of equity
D)Cause an overstatement of equity
E)Cause the balance sheet to be out of balance

Question 23

Changes in accounting estimates are

A)Considered to be accounting errors
B)Reported by retrospective restatement of financial statements
C)Accounted for with a cumulative "catch-up" adjustment
D)Considered to be a change in accounting policy
E)Accounted for in the period of the change and future periods

Question 24

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements or it is required by IFRS.

Question 25

Just before Arugone Funeral Homes Inc.issued a 10% share dividend on December 1,the following data were collected: $\begin{array}{|l|r|}\hline \text { Retained earnings } & \$ 650,000 \\\hline \text { Shares outstanding } & 10,000 \\\hline \text { Market value per share } & \$ 10 \\\hline \text { Par value per share } & \$ 4 \\\hline \text { Shares issued } & 11,000 \\\hline\end{array}$ The amount that total equity will increase (decrease)as a result of recording the share dividend is

A)$7,500
B)$(9,000)
C)$22,500
D)$(27,000)
E)$-0-

Question 26

A change in accounting policy will be presented on the:

A)Income Statement.
B)Balance Sheet.
C)Cash Flow Statement.
D)Statement of Changes in Equity
E)All of these

Question 27

Hunter Ltd.declares a 10% share dividend on December 31,2020.Currently Hunter has 10,000 shares outstanding.The market value of the shares on the date of declaration is $1 per share.The value to be assigned to this share dividend is

A)$1,000
B)$4,000
C)$6,000
D)$8,000
E)$9,000

Question 28

A correction of errors in prior year financial statements require an adjustment to opening retained earnings.

Question 29

Retained earnings are part of the shareholders' claim on the company's net assets.

Question 30

The cumulative effect of changing accounting principles is only reported for the year of the change.

Question 31

Changes in accounting estimates are treated as accounting errors.

Question 32

An expanded income statement for a corporation with discontinued operations includes information on

A)Continuing operations
B)Discontinued operations
C)Earnings per share
D)Net income
E)All of these

Question 33

Reporting for discontinued operations includes:

A)Income or loss from operating the discontinued segment (net of tax
B)Gain or loss from disposal of the segment's net assets (net of tax)
C)Income or loss from operating the discontinued operations (net of tax)and gain or loss from disposal of the operation's net assets (net of tax)
D)Tax benefits of the discontinued segment
E)All of these

Question 34

Retirement of shares

A)Reduces the number of issued shares
B)Is not permissible under law if the interest of the shareholders is not jeopardized
C)Is accounted for like SPLIT shares
D)Reduces the number of issued shares and is permissible under law if the interest of the shareholders is not jeopardized
E)All of these

Question 35

The amount of income earned by each outstanding common share of a corporation is known as

A)Restricted retained earnings
B)Income from continuing operations
C)Earnings per share
D)Dividends payable
E)A share dividend

Question 36

Changes in accounting estimates are applied in determining expenses for the current and future periods.

Question 37

After using an expected useful life of seven years and no residual value to depreciate its machine over the preceding two years,a company decided early this year that the machine would last only three more years.The change in accounting estimate results in an adjustment to ending retained earnings for the prior period with no impact on any future periods.

Question 38

Restrictions on retained earnings can be

A)Limits that identify how much of the retained earnings balance is not available for dividends or the repurchase of shares
B)Statutory limits set by government
C)Due to loan agreements
D)Set by a corporation's directors in order to limit dividends and maintain cash
E)All of these answers

Question 39

Restricted retained earnings must be disclosed on the balance sheet or the statement of changes in equity,or in the notes to the financial statements.

Question 40

Retrospective restatement of financial statements can result from

A)Changes in estimates
B)Changes in accounting policies
C)Errors in the current income statements
D)Changes in tax law
E)Contributed capital

Question 41

The act of a corporation to call in its shares and issue one new share in the place of more than one share previously outstanding is a

A)Share dividend
B)Reverse share split
C)Liquidating dividend
D)Share split
E)Cash dividend

Question 42

On July 31,Sweep Airline Ltd.'s equity was:
Also note that on July 31 the market value of Sweep Airline's shares was $12 per share.The directors considered declaring a 10% or 20% share dividend and wanted to know what effect each share dividend would have on total equity.Calculate the balances that should be in the following accounts after a share dividend distribution.

Question 43

Explain how to calculate earnings per share and how it is used for analysis of a company's financial status.

Question 44

Given the following information about Fox Creek Travel Corporation's current-year activities,answer the questions listed below: What amounts should be reported on the income statement for the items missing:

Question 45

North American Construction Corp.has three lines of business including surveying,excavating and planning.These product lines are considered to be

A)Other comprehensive income
B)Discontinued operations
C)Operating segments
D)Contributed capital
E)All of these

Question 46

Companies use share dividends

A)To keep the market price of the shares affordable
B)To increase the market value of shares
C)To increase contributed capital
D)To raise capital for the company for future expansion
E)All of these

Question 47

Shares that are reacquired and are not cancelled by the issuing corporation are called

A)Capital shares
B)Treasury shares
C)Redeemed shares
D)Preferred shares
E)Callable shares

Question 48

Item(s)that would be included in other comprehensive income include

A)Unrealized gains (losses)on held for trading investments
B)Unrealized gains (losses)on available-for-sale investments
C)Unrealized gains (losses)on held to maturity investments
D)Unrealized gains (losses)on discontinued operation
E)Net income

Question 49

Describe share dividends and share splits.

Question 50

For each of the following independent situations,present the necessary journal entry:

Question 51

A change from moving weighted average to FIFO reporting is

A)A change that results in a discontinued operation
B)A change in accounting principle and is allowed if it improves the usefulness of information in the financial statements
C)Not allowed once an inventory costing method has been chosen
D)Allowed if it improves the usefulness of information in the financial statements
E)A change in accounting principle and is not allowed even if it improves the usefulness of information in the financial statements

Question 52

A share dividend transfers

A)Contributed capital to retained earnings
B)Contributed capital to assets
C)Retained earnings to assets
D)Retained earnings to contributed capital
E)Assets to contributed capital

Question 53

Explain where each of the following items should appear in the financial statements of Reid and Right Corp,a publishing company: (1)After the retirement of the company's CEO,the company has decided to downsize its operations.This will include the elimination of the children's book segment of operations.(2)The company holds 500 shares in Dakota Corp.that originally cost $2,000; the shares now have a market value of $4,000.They are being accounted for as an available-for-sale investment.

Question 54

A corporation's distribution of its own shares to its shareholders without receiving any payment in return is a

A)Premium on shares
B)Share subscription
C)Share dividend
D)Discount on shares
E)Preferred share

Question 55

The financial statement impact for a company that desires to make a change in accounting policy include(s)

A)Retrospective restatement of prior period financial statements
B)Financial impact charged or credited (net of tax)to the opening balance of retained earnings
C)The nature and justification for the change
D)The effect of the change on current year net income
E)All of these

Question 56

A share dividend

A)Is a distribution of additional shares to its shareholders without receiving any payment
B)Transfers a portion of equity from retained earnings to contributed capital
C)Is often referred to as a stock dividend
D)Does not reduce a corporation's assets and equity
E)All of these

Question 57

The Sweet Sleep Corp.equity on January 1 was as follows: common shares,unlimited shares authorized,150,000 shares issued and outstanding; retained earnings,$600,000.Prepare journal entries to record the following transactions:

Question 58

Retained earnings

A)Are the cumulative net profits or losses minus dividends paid since the date of incorporation
B)Are part of the income statement
C)Represent an amount of cash available to pay shareholders
D)Are the cumulative net profits or losses minus dividends paid since the date of incorporation and are part of shareholders' equity
E)All of these

Question 59

Coquitlam Crunch Corporation has 60,000 common shares outstanding.The following transactions related to the company's shares took place during the year:
Prepare the journal entries to record the transactions.

Question 60

Explain the form and content of an expanded income statement for a corporation with discontinued operations.

Question 61

Quantum Corporation had net income of $35,000 and paid preferred dividends of $6,000.Quantum had 4,000 common shares outstanding.Calculate the earnings per share.

Question 62

The Habitat Corporation issued common shares for $35 each.Two years later,on June 10,200 shares were repurchased and retired at a cost of $60 each.The company has $8,000 in contributed capital from the previous retirement of common shares.Present the general journal entry to record the June 10 transaction.

Question 63

Quadrant Corporation originally issued its common shares at $45 per share.
(1)Prepare a journal entry to record the retirement of 600 shares if Quadrant Corporation paid $25 per share.
(2)Prepare a journal entry to record the retirement of 600 shares if Quadrant Corporation paid $75 per share.Quadrant has $12,000 in contributed capital from the previous retirement of common shares.

Question 64

Brook Link Inc.had the following equity as of December 31,Year 1:
The following transactions related to the company's shares took place during Year 2:
Prepare the journal entries to record the Year 2 transactions.

Question 65

Kriton Corporation had net income of $375,000 and paid preferred dividends of $80,000.Kriton had 50,000 common shares outstanding.Calculate the earnings per share.

Question 66

The following information was taken from the ledger and other records of Lillie Inc.at December 31,2021.All amounts are pre-tax.
Additional Information: There was no change in number of preferred shares during the year.Preferred share cash dividends were in arrears for 2020.There were 140,000 common shares outstanding on January 1,2021.24,000 shares were issued on April 1,2021 and another 16,000 shares were issued on Oct.1,2021.Required: Prepare an Income Statement in good form for Lillie Inc.for the fiscal year ended December 31,2021.Use an income tax rate of 40%.Include full earnings per share disclosure and show all calculations.