Question 1

A company made an error in calculating and reporting amortization expense in Year 1.The error was discovered in Year 2.The item should be reported as a prior period adjustment:

Accepted Answer

The error in calculating and reporting amortization expense in Year 1 is a prior period adjustment, which means it should be reported in the statement of retained earnings for the period when the error was discovered (Year 2). The Year 1 statement of retained earnings should reflect the correct amount of net income for that period. The Year 1 income statement should not be restated as it has already been closed. The adjustment should not be reported on the Year 2 income statement as it does not relate to that period. A cumulative "catch-up" adjustment in Year 2 is not required as the adjustment only relates to the prior period (Year 1).

Question 2

Stated value of no-par stock is:

Accepted Answer

Stated value of no-par stock is an amount assigned to no-par stock by the corporation's board of directors. This value is somewhat analogous to the par value for par value stock, serving as a nominal value per share for accounting purposes.

Question 3

Mayan Company had net income of $132,000.The weighted-average common shares outstanding were 80,000.The company has no preferred stock.The company's earnings per share is:

Accepted Answer

Earnings Per Share (EPS) is calculated by dividing the net income by the weighted-average common shares outstanding. So, $132,000 / 80,000 = $1.65.

Question 4

Prior period adjustments are reported in the:

Accepted Answer

Prior period adjustments are reported in the statement of retained earnings because they correct errors from previous periods that were discovered after the financial statements were issued. These adjustments are made to the beginning balance of retained earnings to correct the errors.

Question 5

The number of shares a corporation's charter allows it to sell:

Accepted Answer

The number of shares a corporation's charter allows it to sell is referred to as "authorized" shares.

Question 6

Mayan Company had net income of $132,000.The weighted-average common shares outstanding were 80,000.The company declared a $27,000 dividend on its noncumulative,nonparticipating preferred stock.There were no other stock transactions.The company's earnings per share is:

Accepted Answer

First, we need to calculate the earnings available to common shareholders by subtracting the preferred dividend from the net income:

$132,000 - $27,000 = $105,000

Then, we can divide by the weighted-average common shares outstanding:

$105,000 / 80,000 = $1.31

Therefore, the earnings per share is $1.31.

Question 7

A company had a beginning balance in retained earnings of $430,000.It had net income of $60,000 and declared and paid cash dividends of $56,250 in the current period.The ending balance in retained earnings equals:

Accepted Answer

Retained earnings = Beginning balance + Net income - Dividends paid
Retained earnings = $430,000 + $60,000 - $56,250
Retained earnings = $433,750
Therefore, the ending balance in retained earnings is $433,750. Option D is the correct answer.

Question 8

The least amount that the buyers of stock must contribute to the corporation or be at risk to pay creditors at a future date is called the:

Accepted Answer

Minimum legal capital is the minimum amount of capital that a corporation must have to protect the creditors. It is also called legal capital or stated capital. The other options are unrelated to this concept.

Question 9

A class of stock for which there is no minimum legal capital is called:

Accepted Answer

No-par stock is a class of stock that lacks a minimum legal capital requirement. It does not have a par value, which is the minimum price at which the stock can be issued. The issuance price of no-par stock is determined by the market forces of supply and demand.

Question 10

Changes in retained earnings are commonly reported in the:

Accepted Answer

Retained earnings are a part of stockholders' equity, and changes in retained earnings are usually reported in the statement of stockholders' equity. The statement of stockholders' equity shows the changes in each component of stockholders' equity, including retained earnings, during the accounting period.

Question 11

Companies report prior period adjustments,net of any income tax effects in the:

Accepted Answer

Prior period adjustments are reported in the statement of retained earnings to reflect the correction of errors in previous periods impacting the balance of retained earnings. This adjustment is not reported in the income statement because it is not related to the current period's income, nor in the balance sheet because it is not related to the current balance of assets, liabilities, or equity. The statement of cash flows only reports cash flows related to the current period. Therefore, the best choice is option C.

Question 12

The statement of changes in stockholders' equity:

Accepted Answer

The statement of changes in stockholders' equity provides information on changes in paid-in capital and retained earnings subcategories, including any stock issuances, stock repurchases, dividends paid, and net income. It may include changes in treasury stock as well. It is a required financial statement for all public companies and many private companies. It is separate from the statement of retained earnings, which only shows changes in retained earnings.

Question 13

Retained earnings:

Accepted Answer

Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception. This amount represents the portion of a company's net income that is not distributed to shareholders as dividends, and is instead reinvested in the company for growth and development.

Question 14

Changes in accounting estimates are:

Accepted Answer

Changes in accounting estimates are not considered accounting errors and are not reported as prior period adjustments. They are accounted for with a cumulative adjustment in the current period and are also reflected in future periods. They are not reported on the statement of cash flows.

Question 15

A company had a beginning balance in retained earnings of $400,000.It had net income of $50,000 and declared and paid cash dividends of $55,000 in the current period.The ending balance in retained earnings equals:

Accepted Answer

The ending balance in retained earnings is calculated by starting with the beginning balance, adding net income, and subtracting dividends paid. Therefore, $400,000 + $50,000 - $55,000 = $395,000.

Question 16

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

Accepted Answer

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is referred to as paid-in capital. It may be equal to or above the par value and is not necessarily related to the stated value. Retained earnings, on the other hand, are the cumulative net income of the company that has not been distributed as dividends to stockholders.

Question 17

Prior period adjustments to financial statements can result from:

Accepted Answer

Prior period adjustments typically result from errors or unacceptable accounting practices that occurred in prior periods. Changes in estimates of useful life or salvage value, as well as changes in tax law or discontinued operations, generally do not result in prior period adjustments.

Question 18

Stockholders' equity consists of which of the following?

Accepted Answer

Stockholders' equity consists of paid-in capital, which is the amount of capital that has been contributed to the corporation by its shareholders, and retained earnings, which is the accumulated profit of the corporation that has not been distributed to shareholders. Par value is a nominal value assigned to each share of stock and is not a part of stockholders' equity. Long-term assets, retained earnings, and cash are components of a company's balance sheet but are not part of stockholders' equity. Premiums and discounts are typically associated with the issuance of bonds and are not part of stockholders' equity.

Question 19

The amount of income earned per share of a company's outstanding common stock is known as:

Accepted Answer

Earnings per share represents the amount of net income earned by a company per share of its outstanding common stock. It is calculated by dividing the company's net income by the total number of outstanding shares.

Question 20

The price-earnings ratio is calculated by dividing:

Accepted Answer

The price-earnings ratio (P/E Ratio) is calculated by dividing the market value per share by earnings per share. It is a financial ratio used to measure the relative value of a company's stock. The P/E Ratio is a useful tool for investors to assess the company's growth potential and to compare it with the industry average or other companies in the same sector.

Quiz 11: Corporate Reporting and Analysis