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.

Accepted Answer

The disposal of a component of an entity is reported in the "discontinued operations" section of the income statement, but it must include the income tax effect.

Question 2

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

Accepted Answer

Stock dividends reduce retained earnings but do not reduce total shareholders' equity; they redistribute equity from retained earnings to paid-in capital.

Question 3

Stock splits are not recorded in a journal entry.

Accepted Answer

Stock splits do not involve any exchange of cash or change in the total value of equity, so they are not recorded in the journal. Instead, they are noted in the memorandum section of the financial records.

Question 4

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

Accepted Answer

The current year's dividend on preferred shares is subtracted from profit to determine the earnings available to common shareholders when calculating earnings per share.

Question 5

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

Accepted Answer

Treasury shares are shares that a company has repurchased but not retired or cancelled, and they are held in the company's treasury.

Question 6

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

Accepted Answer

The payout ratio is a financial metric that shows the proportion of earnings a company pays to its shareholders in the form of dividends, calculated by dividing total cash dividends by profit (net income).

Question 7

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

Accepted Answer

Prior year financial statements are typically restated to reflect changes in accounting policies to ensure consistency and comparability across periods.

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.

Accepted Answer

The statement of changes in shareholders' equity provides a detailed account of changes in each component of equity, including accumulated other comprehensive income, over a specific period.

Question 9

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

Accepted Answer

Companies following ASPE (Accounting Standards for Private Enterprises) are not required to prepare a statement of comprehensive income; this requirement is specific to companies following IFRS (International Financial Reporting Standards).

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).

Accepted Answer

(50,000 x 10% x $25)

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.

Accepted Answer

({$120,000 - $20,000} ÷ 50,000)

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.

Accepted Answer

(50,000 x 12/12 + 12,000 x 9/12)

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.

Accepted Answer

The correction of a prior period error that understated profit would involve a credit to retained earnings to adjust for the previously understated profit, as retained earnings reflect cumulative profits and losses.

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.

Accepted Answer

The statement of changes in shareholders' equity includes changes to contributed capital, retained earnings, and accumulated other comprehensive income, reflecting the equity movements during a period.

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.

Accepted Answer

Discontinued operations are shown net of income tax on the income statement, reflecting the after-tax impact of the operations that have been discontinued.

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.

Accepted Answer

The answer of Cooper Corporation has 100,000 common shares issued...

Question 17

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

Accepted Answer

The answer of What are 2 reasons that a corporation...

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.

Accepted Answer

The answer of On March 21, Charlotte Inc. reacquired 2,000...

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.

Accepted Answer

The answer of On July 1, when there were 220,000...

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.

Accepted Answer

The answer of Fowler Corporation began the year with 50,000...

Quiz 14: Corporations: Additional Topics and IFRS

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.

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

Stock splits are not recorded in a journal entry.

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

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

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

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

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.

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

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:

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:

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:

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

A statement of changes in shareholders' equity:

Discontinued operations are:

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:

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

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.

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.