Question 1

A company is required to report both basic and diluted earnings per share when the:

Accepted Answer

A company must report both basic and diluted earnings per share if it has a complex capital structure, which includes securities like convertible preferred stock that can potentially dilute earnings per share.

Question 2

On January 1, Scuppernong Corporation's Common Stock account had a balance of $300,000, representing 30,000 shares of $10 par value issued at par. On July 1, 6,000 shares were issued for $60,000 cash. On October 1, a 10% stock dividend was declared and distributed. On November 30, 15,000 shares were reacquired by the corporation at $12 per share. What is the balance in Common Stock appearing on the statement of stockholders' equity on December 31?

Accepted Answer

The initial balance was $300,000 for 30,000 shares. On July 1, 6,000 shares were issued, increasing the balance by $60,000 (6,000 shares x $10 par value). On October 1, a 10% stock dividend was declared, adding 3,600 shares (10% of 36,000 shares), increasing the balance by $36,000 (3,600 shares x $10 par value). The reacquisition of shares does not affect the Common Stock account. Thus, the balance is $396,000.

Question 3

Current earnings per share information is as follows:  The interest capitalization rate is 8%. How much should an investor pay for a share of stock?

Accepted Answer

The answer of Current earnings per share information is as...

Question 4

Which of the following should probably be included when estimating future earnings? i. income from continuing operations
Ii. gain on sale of business segment
Iii. loss due to natural disaster

Accepted Answer

Income from continuing operations is a recurring and sustainable source of earnings, making it relevant for estimating future earnings. Gains on sale of business segments and losses due to natural disasters are typically non-recurring and should not be included in future earnings estimates.

Question 5

On a Statement of Stockholders' Equity, treasury stock transactions affect:

Accepted Answer

Treasury stock transactions affect additional paid-in capital because when a company buys back its own shares, it can affect the additional paid-in capital if the shares are reissued at a price different from the original issue price.

Question 6

Net income was understated in the previous year. The entry to record the correction includes a:

Accepted Answer

When net income is understated, Retained Earnings is also understated. To correct this, a credit to Retained Earnings is needed to increase it to the correct amount.

Question 7

A business incurs a loss from a hurricane. It is the first time the business has had a loss from such an event. This loss would probably be classified on an income statement as an:

Accepted Answer

An extraordinary item is a gain or loss that is both unusual and infrequent, such as a loss from a hurricane in an area where such events are rare.

Question 8

A company sold an unused building at a loss. The loss from this event would be shown as:

Accepted Answer

The loss from selling an unused building is considered part of other gains and losses, as it is not part of the company's primary operations but also not extraordinary.

Question 9

An audit opinion stating that the statements are unreliable is known as an):

Accepted Answer

An adverse opinion is issued when the auditor determines that the financial statements are materially misstated and do not accurately reflect the company's financial position.

Question 10

A company that switches from straight- line depreciation to double- declining- balance depreciation during an accounting period must report this change on the financial statements as:

Accepted Answer

A change in depreciation method is considered a change in accounting principle, and its cumulative effect is reported in the financial statements.

Question 11

Deferred tax liability is normally classified as a and income tax payable is classified as a on the balance sheet.

Accepted Answer

Deferred tax liability is typically a long-term liability because it arises from temporary differences that are expected to reverse in future periods. Income tax payable is a current liability as it represents taxes owed to the government that are due within the current year.

Question 12

A statement of responsibility declares that:

Accepted Answer

Management is responsible for the preparation and presentation of financial statements in accordance with GAAP. Auditors are responsible for expressing an opinion on these statements.

Question 13

On January 1, Polk Corporation's Retained Earnings account had a balance of $625,000. During the year, cash dividends of $27,000 and stock dividends with a market value of $53,000 were declared and distributed. Polk Corporation reported a net loss of $7,000 for the year. What is the balance in Retained Earnings on December 31?

Accepted Answer

The balance in Retained Earnings is calculated by subtracting the cash dividends, stock dividends, and net loss from the beginning balance. Starting with $625,000, subtract $27,000 (cash dividends), $53,000 (stock dividends), and $7,000 (net loss), resulting in a balance of $538,000.

Question 14

A company incurs a loss due to restructuring. This is the first time the company has experienced a restructuring. The loss from this event would be shown as:

Accepted Answer

The loss from restructuring would be shown as other gains and losses because it is not considered an extraordinary item under accounting standards.

Question 15

Pretax accounting income is found on the:

Accepted Answer

Pretax accounting income is found on the income statement because it is a measure of a company's financial performance before taxes are taken into account.

Question 16

When pretax accounting income exceeds taxable income:

Accepted Answer

When pretax accounting income exceeds taxable income, it indicates that taxes will be paid in the future, creating a deferred tax liability.

Question 17

Lansing Corporation reported depreciation expense of $50,000 to compute pretax accounting income and depreciation expense of $90,000 to compute taxable income. Lansing's tax rate is 40%. Lansing will report a:

Accepted Answer

The answer of Lansing Corporation reported depreciation expense of $50,000...

Question 18

Which items are excluded from the determination of net income but are included in the determination of other comprehensive income?

Accepted Answer

Foreign currency translation adjustments are included in other comprehensive income but not in net income.

Question 19

Which of the following transactions affect Retained Earnings?

Accepted Answer

All of the listed transactions affect Retained Earnings: declaring a cash dividend reduces it, earning net income increases it, and issuing a stock dividend reallocates amounts within equity but affects retained earnings.

Question 20

Unrealized gains or losses on available- for- sale investments are reported as:

Accepted Answer

Unrealized gains or losses on available-for-sale investments are reported as other comprehensive income because they do not affect net income until they are realized.

Quiz 11: The Income Statement and the Statement of Stockholders Equity