Deck 9: Long-Lived Assets

Question 1

For purposes of computing the average number of common shares outstanding,stock dividends are treated in the same manner as stock splits.

Answer 1

True

Question 2

When a midyear stock dividend increases the number of common shares outstanding for the period,the average number of common shares outstanding is computed as if the stock dividend was distributed at the beginning of the year.

Answer 2

True

Question 3

Nonconvertible,cumulative preferred shares affect the computation of EPS (for simple capital structure),basic EPS and diluted EPS.

Answer 3

True

Question 4

Only firms with a complex capital structure must compute diluted EPS.

Question 5

An anti-dilutive effect means that EPS is decreased as a result.

Question 6

Reporting earnings per share for public companies is optional; however,its presentation is strongly recommended.

Question 7

The diluted EPS should be disclosed in the financial statements only if it is materially different from basic EPS.

Question 8

Earnings per share refer to the amount of earnings attributable to each share of common and preferred stock.

Question 9

Convertible securities and options are always included in the calculation of diluted EPS.

Question 10

The diluted EPS does not have to be disclosed in the financial statements.

Question 11

Corporations with simple capital structures are required to present two sets of EPS data.

Question 12

When a midyear stock dividend increases the number of common shares outstanding for the period,the new shares resulting from the dividend are weighted by one-half a year for purposes of computing EPS.

Question 13

In some cases,diluted earnings per share amounts may be the same as the basic earnings per share amounts.

Question 14

Stock dividend and stock splits are treated as though they had been in effect for the entire period.

Question 15

The treasury stock method is only used for options,and only the denominator is affected.

Question 16

A simple capital structure is one in which the shareholders' equity consists only of common shares or includes no potentially dilutive securities.

Question 17

Anti-dilution must be considered only with complex capital structures.

Question 18

Provided that the conditions for share issuance are met at the end of a period and the date of the contingency period has not expired,contingently issuable shares will be included in EPS calculations.

Question 19

A simple capital structure refers to a shareholders' equity section which only has common shares and no potentially dilutive securities that,upon their conversion or exercise in the aggregate,would dilute earnings per share.

Question 20

The basic EPS can be compared with basic EPS numbers from the past years to see whether the company is earning more or less for its common shareholders.

Question 21

Diluted earnings per share recalculate EPS as though the conversions of different instruments had taken place at the end of the year.

Question 22

Diluted EPS indicate long-run impact that the likely conversion will have on the earnings attributable to common shares.

Question 23

EPS figures must be disclosed under both ASPE and IFRS.

Question 24

At December 31,2014,the shareholders' equity of ABC Inc.reported as outstanding: 100 common shares and 30 nonconvertible preferred shares.On July 1,2015,ABC Inc.issued a 10 percent stock dividend on its common shares and paid a cash dividend of $2.00 per share on its preferred (the full year's requirement).Income for the year ended December 31,2015 was $1,170.The 2015 EPS,rounded to the nearest cent,for ABC Inc.should be $8.58.

Question 25

ABC Inc.has 20,000 common shares outstanding throughout the year.It also had 20,000,6 percent preferred shares,par $20,(cumulative and nonconvertible)outstanding throughout the year.Net income was $300,000.The earnings per share amount would be $13.80

Question 26

When computing the weighted average number of shares outstanding,an actual conversion of convertible preferred shares is assumed to have occurred on the first day of the year,regardless of when it was converted.

Question 27

Diluted EPS is meant to be a worst-case scenario.

Question 28

For purposes of computing the weighted average number of shares outstanding during the year,a midyear event that must be treated as occurring at the beginning of the year is the purchase of treasury stock.

Question 29

EPS figures must be disclosed on the face of the financial statements for discontinued operations.

Question 30

Option adjustments are based on the treasury stock method.

Question 31

A reverse split may be used to increase the value per share of a company.

Question 32

When there has been a retrospective change in Accounting policy or a restatement,EPS figures must be recalculated accordingly.

Question 33

When computing diluted earnings per share,convertible securities are a sale of additional common stock.

Question 34

Where there are significant changes in a corporation's capital structure after year end but before the financial statement date,the transaction must be disclosed and described.

Question 35

Basic EPS is an historical amount.

Question 36

Company A has an EPS of $6 and Company B has an EPS of $23.Based on this information,Company B is the better investment.

Question 37

Wholly-owned subsidiaries are required to disclose earnings per share.

Question 38

Bonds and preferred share adjustments are based on the if-converted method.

Question 39

When different classes of common shares exist,a separate calculation of EPS is required for each class of common shares when dividend privileges differ by share class.

Question 40

Options are in-the-money if the exercise price is higher that the market value of common shares.

Question 41

Stock rights,options,and warrants determined to be dilutive when computing fully diluted earnings per share may be anti-dilutive when computing basic earnings per share.

Question 42

A simple capital structure could have,in addition to common shares,a security that is a:

A) Stock right.
B) Stock warrant.
C) Convertible preferred shares.
D) Convertible bond.
E) Nonconvertible preferred shares.

Question 43

In computing EPS for a simple capital structure,net income is reduced by cumulative preferred dividends on nonconvertible preferred shares,whether dividends are declared or not.

Question 44

If the corporation purchases common treasury stock,those shares would be included in the EPS computation only for the fraction of the year that they were outstanding.

Question 45

The annual dividend on nonconvertible cumulative preferred shares is $10,000.At the beginning of the current year,there were 3 years of dividends in arrears.During the current year,$38,000 of dividends on the preferred shares was declared,and $35,000 were paid.What amount of dividends on preferred shares will be subtracted from earnings when computing basic EPS for the current year?

A) $40,000
B) $10,000
C) $38,000
D) $35,000
E) $30,000

Question 46

Which of the following statements is correct?

A) Basic EPS is hypothetical figure while diluted EPS is a historical figure.
B) Basic EPS is a historical figure while diluted EPS is a hypothetical figure.
C) Basic and diluted EPS are both historical figures.
D) Basic and diluted EPS are both hypothetical figures.

Question 47

In computing the weighted average number of shares outstanding,the following is considered outstanding only as of the date issued or sold:

A) Stock splits.
B) Reverse stock splits.
C) Stock dividends.
D) Common shares issued.

Question 48

If nonconvertible preferred shares are noncumulative,subtraction of the current year's dividend must be made whether preferred dividends are declared or not for the current year.

Question 49

Nonconvertible,cumulative,preferred shares affect the computation of EPS (for a simple capital structure),basic EPS,but not diluted EPS.

Question 50

If net income is $10,000 and there were 8,000 common shares issued and outstanding the entire year,and $100,000 of noncumulative,nonconvertible 6% $100 par preferred shares outstanding the entire year,what is EPS if no dividends were declared during the year?

A) $1.00
B) $0.50
C) $1.25
D) $2.00

Question 51

A preferred dividend claim should be subtracted from income to compute basic EPS if the preferred shares are:

A) Noncumulative, nonconvertible, and a dividend has not been declared; however, a dividend was paid this year in fulfillment of the obligation from last year's declaration.
B) Noncumulative, nonconvertible, and the company would like to declare a dividend; however, by law they can't because of a debit balance in the retained earnings account.
C) Noncumulative, nonconvertible, non-participating, and the dividend has been declared.
D) Participating, nonconvertible, noncumulative, and the dividend has not been declared.

Question 52

Dilutive convertible securities must be used in the computation of:

A) Diluted and basic earnings per share.
B) Diluted earnings per share.
C) Basic earnings per share.
D) Dilutive convertible securities are not used in any computations of earnings per share.

Question 53

When computing diluted earnings per share,convertible securities are:

A) Ignored.
B) Recognized only if they are dilutive.
C) Recognized only if they are anti-dilutive.
D) Recognized whether they are dilutive or anti-dilutive.

Question 54

The annual dividend on nonconvertible cumulative preferred shares is $10,000.At the beginning of the current year,there were 3 years of dividends in arrears.During the current year,$38,000 of dividends on the preferred shares were declared,and $35,000 were paid.What amount of dividends on preferred shares will be subtracted from earnings when computing diluted EPS for the current year?

A) $40,000
B) $10,000
C) $38,000
D) $35,000
E) $30,000

Question 55

When shares are issued by a parent company as consideration for the acquisition of a wholly owned subsidiary,the parent's EPS figures will always decline in the short term.This is because the subsidiary's earnings will only be added to the parent's earnings in the following period.

Question 56

At December 31,2013,XYZ had 40,000 common shares issued and outstanding and 10,000 nonconvertible preferred shares issued and outstanding.XYZ's net income for the year ended December 31,2014,was $120,000.During 2014,XYZ declared and paid $50,000 cash dividends on common and $8,000 cash dividends on the nonconvertible preferred (the annual requirement).There were no common share or preferred share transactions during the year.The earnings per common share for the year ended December 31,2014,should be:

A) $1.75
B) $2.40
C) $2.80
D) $3.00

Question 57

Earnings per share is computed on the basis of:

A) A weighted average of the number of common shares outstanding during the year.
B) A weighted average of the number of preferred and common shares outstanding during the year.
C) The number of common shares outstanding at the end of the year.
D) The number of common and preferred shares outstanding at the end of the year.

Question 58

ABC paid $5,000 in dividends to its preferred shareholders.The 5 percent preferred shares (10,000 shares outstanding)are nonconvertible and noncumulative.The $5,000 dividend:

A) Will be added to the numerator of the EPS calculation.
B) Will be subtracted from the numerator of the EPS calculation.
C) Will be added to the denominator of the EPS calculation.
D) May not affect the EPS calculation, depending on the declaration date of the dividends.

Question 59

Which of the following choices best describes the location of the required basic and diluted EPS disclosures for public companies?

A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4
E) Choice 5

Question 60

With respect to the computation of earnings per share,which of the following would be most indicative of a simple capital structure?

A) Ownership interests consisting only of common shares
B) Equity represented only by common and convertible preferred shares
C) Common shares, preferred shares, and convertible securities outstanding in lots of even thousands
D) Earnings derived from one primary product segment of business

Question 61

The reported diluted earnings per share figure may be:

A) Less than the basic earnings per share figure.
B) More than the basic earnings per share figure.
C) Equal to the basic earnings per share figure.
D) More than or less than the basic earnings per share figure.

Question 62

JUNK BONDS Inc.began operations Jan.1,2014.The following events related to common shares took place on the indicated dates during 2014. Jan.1 Issued 25,000 common shares
Apr)1 Purchased 4,000 treasury shares
May 1 Split the common shares 4-for-1
Aug)1 Issued 20,000 common shares
Dec)1 Issued a 25% stock dividend
Assuming no potentially dilutive securities,what is the weighted average shares for EPS in 2014?(Do not round intermediate calculations.Round your final answer to nearest whole number.)

A) 96,333 shares
B) 37,917 shares
C) 120,416 shares
D) 118,345 shares

Question 63

When computing diluted earnings per share,convertible securities are:

A) Incorporated into diluted EPS only if they are dilutive.
B) Incorporated into diluted EPS only if they are anti-dilutive.
C) Ignored for EPS purposes.
D) Incorporated into diluted EPS whether they are dilutive or anti-dilutive.

Question 64

When a company has negative net income and potentially dilutive securities,the calculation of EPS results in:

A) Diluted EPS i.e. all potentially dilutive securities are included in the calculation (whether dilutive or anti-dilutive).
B) No EPS being reported.
C) Diluted EPS being reported and it will be more than basic EPS.
D) None of these choices are correct.

Question 65

XYZ reported the following equity accounts on December 31 of this year: Additional Information:
(1)The Board of Directors declared a 10 percent stock dividend on all classes of shares on April 1,and issued these shares on August 1.
(2)Income for the period was $88.
(3)There were no share transactions during the year,other than the stock dividend.
The basic earnings per share amount is: (Rounded to the nearest cent.)

A) $1.52.
B) $1.68.
C) $2.00.
D) $2.20.
E) There would not be a basic earnings per share figure for XYZ this year.

Question 66

RST's net income for the year ended December 31,2014,was $30,000.During 2014,RST declared and paid $3,000 cash dividends on preferred shares (the full year's requirement)and $5,250 cash dividends on common shares.At December 31,2014,36,000 common shares were issued and outstanding,30,000 of which had been outstanding throughout the year and 6,000 of which were issued on July 1,2014.No other common share transactions were completed during the year,and there is no potential dilution of earnings per share.The 2014 earnings per common share of RST,rounded to the nearest cent,should be:

A) $0.75.
B) $0.82.
C) $0.91.
D) $1.00.

Question 67

For purposes of computing the weighted average number of shares outstanding during the year,a midyear event that must be treated as occurring at the beginning of the year is the:

A) Sale of additional common shares.
B) Issuance of stock warrants.
C) Purchase of treasury stock.
D) Declaration and issuance of stock dividend.

Question 68

At December 31,2014,QRS had 500 common shares issued and outstanding,400 of which had been issued and outstanding throughout the year and 100 of which were issued on October 1,2014.Net income for the year ended December 31,2014,was $4,288.What should be QRS's 2014 earnings per common share,rounded to the nearest cent?

A) $8.58
B) $9.53
C) $10.09
D) $10.72

Question 69

At December 31,2013,MNO had 50,000 common shares issued and outstanding.On April 1,2014,an additional 10,000 common shares were issued.MNO's net income for the year ended December 31,2014,was $1,035,000.During 2014,MNO declared and paid $600,000 cash dividends on its nonconvertible preferred shares (the full year's requirement).The earnings per common share,rounded to the nearest cent,for the year ended December 31,2014,should be:

A) $7.57.
B) $7.92.
C) $18.00.
D) $18.84.

Question 70

Convertible noncumulative preferred stock for which the current year's dividend has not been declared does not affect the EPS figures if it:

A) Has been converted.
B) Is anti-dilutive.
C) Is a common convertible security.
D) None of these choices are correct.

Question 71

The classification of a security as a convertible security should be based on information available at the time:

A) The security would be the most dilutive.
B) The security would be the most anti-dilutive.
C) The EPS calculation is made each year.
D) The security is issued.

Question 72

Firm that earned $20,000 (after tax)had the following securities outstanding all year during which the tax rate was 40%: 20,000 common shares
1,000,6%,$100 par cumulative nonconvertible preferred shares
2,000,4%,$50 par cumulative preferred shares,each share convertible into 5 common shares
100,8%,$1,000 convertible bonds,each convertible into 10 common shares (bonds were issued at face)
What is basic EPS? (Rounded to the nearest cent)

A) $0.50
B) $0.70
C) $1.00
D) $0.75

Question 73

PPO Inc.discloses the following results and information at the end of the current year: What are PPO's earnings per common share for the current year? (Rounded to the nearest cent.)

A) $1.50
B) $6.00
C) $2.00
D) $8.00

Question 74

ABC experienced the following changes in its capital structure during 2014: Outstanding on January 1,2014,90 common stock shares
Sold 120 common shares on February 1,2014
Sold 60 common shares on April 1,2014
Issued a 2 for 1 split on August 1,2014
ABC's weighted average number of common shares outstanding for 2014 would be:

A) 245.
B) 315.
C) 490.
D) 540.

Question 75

ABC has 20,000 common shares outstanding throughout the year.It also had 20,000,6 percent preferred shares,par $20,(cumulative and nonconvertible)outstanding throughout the year.Net income was $300,000.The earnings per share amount would be: (Rounded to the nearest cent.)

A) $9.20
B) $10.00
C) $13.80
D) $15.00

Question 76

Jimbo Co.began operations Jan.1,2014.The following events related to common stock took place on the indicated dates during 2014. Jan.1 Issued 5,000 common shares
Apr)1 Purchased 400 treasury shares
May 1 Split 2-for-1
Aug)1 Issued 2,000 common shares
Dec)1 Issued a 20% stock dividend
Assuming no potentially dilutive securities,what are the weighted average shares for EPS in 2014? (Do not round intermediate calculations.Round your final answer to nearest whole number.)

A) 12,280 shares
B) 10,233 shares
C) 6,640 shares
D) 12,080 shares

Question 77

Concerning earnings per share for a complex capital structure,which of the following statements is incorrect?

A) Basic earnings per share must be based on the weighted average number of common shares outstanding.
B) Both basic and diluted earnings per share must be presented on the face of the financial statements.
C) A "convertible security" is a security which is not, in form, a common share but which contains provisions to enable its holder to become a common shareholder.
D) "Basic earnings per share" is never reported at less than "diluted earnings per share."
E) If the only potentially dilutive security outstanding is an employee stock option plan, then primary and diluted EPS must be equal.

Question 78

At December 31,2013,the shareholders' equity of LMN reported as outstanding: 100 common shares and 30 nonconvertible preferred shares.On July 1,2014,LMN issued a 10 percent stock dividend on its common shares and paid a cash dividend of $2.00 per share on its preferred (the full year's requirement).Income for the year ended December 31,2014 was $1,170.The 2014 EPS,rounded to the nearest cent,for LMN should be:

A) $10.09.
B) $10.58.
C) $10.64.
D) $11.70.

Question 79

A basic earnings per share figure is presented for:

A) A complex capital structure.
B) A simple capital structure.
C) Both simple and complex structures.
D) Neither simple nor complex structures.

Question 80

WXY had the following common share transactions: The weighted average number of shares outstanding for the year was: (Round your answer to nearest whole number.)

A) 95 shares.
B) 110 shares.
C) 115 shares.
D) 129 shares.