Deck 14: Corporations: Additional Topics and IFRS

Question 1

When a component of an entity is disposed of, the disposal is reported separately on the income statement in the "discontinued operations" section, ignoring the income tax effect.

Answer 1

False

Question 2

Stock dividends reduce retained earnings and shareholders' equity in total.

Answer 2

False

Question 3

Stock splits are not recorded in a journal entry.

Answer 3

True

Question 4

When calculating earnings per share, the current year's dividend declared on preferred shares is subtracted from profit.

Question 5

When a company reacquires shares and the shares are not retired or cancelled, they are referred to as treasury shares.

Question 6

The payout ratio is calculated by dividing total cash dividends by profit.

Question 7

Prior year financial statements that are published with the current statements are not adjusted for changes in accounting policies.

Question 8

The statement of changes in shareholders' equity shows the changes in total shareholders' equity during the year as well as each shareholders' equity account, such as accumulated other comprehensive income.

Question 9

Companies following ASPE need to prepare a statement of comprehensive income.

Question 10

A company had 50,000 common shares. During the period, a 10% stock dividend was declared and distributed. The market value was $25 a share. As a result of this stock dividend, retained earnings should increase (decrease) by:

A) $50,000.
B) $(50,000).
C) $125,000.
D) $(125,000).

Question 11

Dawson Corporation had profit of $120,000. Dawson paid $20,000 in dividends to the preferred shareholders and $40,000 in dividends to the common shareholders. Dawson had 15,000 preferred shares and 50,000 common shares issued all year. Earnings per share is:

A) $1.20.
B) $2.00.
C) $1.85.
D) $2.40.

Question 12

On January 1, Pater Corporation had 10,000 preferred shares and 50,000 common shares issued. On April 1, Pater issued 12,000 common shares. The weighted average number of shares for the calculation of earnings per share is:

A) 50,000.
B) 56,000.
C) 59,000.
D) 62,000.

Question 13

The correction of a prior period error that had understated profit last year would:

A) include a credit to retained earnings.
B) increase current profit.
C) include a debit to retained earnings.
D) decrease current profit.

Question 14

A statement of changes in shareholders' equity:

A) must be prepared for companies following ASPE.
B) includes the changes to contributed capital, retained earnings, and accumulated other comprehensive income.
C) is optional under IFRS.
D) replaces the statement of comprehensive income.

Question 15

Discontinued operations are:

A) rare.
B) shown net of income tax on the income statement.
C) shown in the Other Revenues or Other Expenses section of the income statement.
D) shown as one amount on the income statement, combining the operating profit (or loss) with the gain (or loss) on disposal.

Question 16

Cooper Corporation has 100,000 common shares issued at an average price of $20 per share. Cooper reacquires 1,000 shares for $19,500 and cancels them. The journal entry would include:

A) a $19,500 debit to cash.
B) a $500 debit to Loss on Reacquisition of Common Shares.
C) a $500 credit to Gain on Reacquisition of Common Shares.
D) a $20,000 debit to Common Shares.

Question 17

What are 2 reasons that a corporation may reacquire its own shares?

Question 18

On March 21, Charlotte Inc. reacquired 2,000 of its common shares at a price of $2.00 per share. The balance in the Common Share account is $200,000 and 90,000 shares are issued.

Question 19

On July 1, when there were 220,000 shares issued, Marvo Corporation declared a 5% stock dividend on its common shares. The dividend will be distributed on July 31 to the shareholders of record on July 15. Marvo shares were trading at $18.00 on July 1, $17.50 on July 15, and $17.20 on July 31. Prepare the journal entry necessary for each date.

Question 20

Fowler Corporation began the year with 50,000 common shares issued. On April 1, Fowler issued 8,000 shares for cash. On July 1, Fowler issued another 6,000 shares for cash. Calculate the weighted average number of shares.

Question 21

What are the overall effects (increase, decrease or no effect) on Assets and Retained Earnings of cash dividends (after they are paid), stock dividends and stock splits?