31. 11-43.Book value per share of common stock is derived by which of the following
A.Stockholders equity divided by the number of shares authorized.
B.Stockholders equity divided by the number of shares outstanding.
C.Net income divided by the number of shares outstanding
D.Net income divided by the number of shares authorized.
32. 11-44.The net assets of a corporation are equal to:
A.Total assets - total liabilities.
B.Total assets - retained earnings.
C.Total assets + total liabilities.
D.Total assets + retained earnings.
33. 11-46.When shares of stock are sold from one investor to another they will trade at:
A.Par value.
B.Book value.
C.Market value.
D.Stated Value.
34. 11-49.Which of the following is not a characteristic of the corporate form of organization?
A.The owners of a corporation cannot lose more than the amount of their investment.
B.Shares of stock in a corporation are more readily transferable than is an interest in a partnership.
C.Stockholders have authority to decide by majority vote the amount of dividends to be paid.
D.The corporation is a very efficient vehicle for obtaining large amounts of capital required for large-scale production.
35. 11-52.A primary disadvantage of the corporate form of organization is:
A.Unlimited personal liability for business debts.
B.Ownership is difficult to transfer.
C.Corporate earnings are subject to double taxation.
D.Management is separated from ownership.
36. 11-53.Public corporations are required by law or regulation to perform all of the following except:
A.Submit much of their financial information to the SEC for review.
B.Make regularly scheduled dividend payments to all stockholders.
C.Have their annual financial statements audited by an independent CPA.
D.Disclose their financial information to the public.
37. 11-54.Which of the following is not a right of stockholders?
A.To vote for directors and on key issues.
B.To participate in dividends declared.
C.To share in the distribution of assets if the corporation is liquidated.
D.All three of the above are rights of the stockholders.
38. 11-62.Which of the following would usually be the greatest amount?
A.The number of shares authorized.
B.The number of shares issued.
C.The number of shares outstanding.
D.They must all be the same amount.
39. 11-65.The overall effect of declaring and distributing a cash dividend includes each of the following except:
A.Reducing total assets.
B.Reducing stockholders' equity.
C.Reducing the balance of the Retained Earnings account.
D.Reducing net income for the period.
40. 11-71.When a corporation issues capital stock at a price higher than the par value:
A.The amount received over par value increases retained earnings.
B.The entire issue price is credited to the Capital Stock account.
C.The amount received in excess of par value constitutes profit to the issuing corporation.
D.The amount received in excess of par value becomes part of paid-in capital.
41. 11-77.Treasury stock:
A.Is an asset.
B.Increases total stockholders' equity.
C.Decreases total stockholders' equity.
D.Does not change total stockholders' equity.
42. 11-83.Stock that had been issued by a corporation and later reacquired is classified as:
A.Treasury stock.
B.Non-participating preferred stock.
C.Restricted stock.
D.Issued shares.
43. 11-88.Zigma Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock. The corporation issued half the stock for cash at $8 per share, earned $336,000 during the first three months of operation, and declared a cash dividend of $60,000. The total paid-in capital of Zigma Corporation after three months of operation is:
A.$7,940,000.
B.$8,000,000.
C.$8,276,000.
D.$8,336,000.
1,000,000 x $8 = $8,000,000
44. 11-89.Thurman Corporation issued 450,000 shares of $.50 par value capital stock at its date of incorporation for cash at a price of $4 per share. During the first year of operations, the company earned $100,000 and declared a dividend of $40,000. At the end of this first year of operations, the balance of the Common Stock account is:
A.$1,800,000.
B.$1,860,000.
C.$225,000.
D.$1,820,000.
450,000 x $0.5 = $225,000
45. 11-90.Century Corporation issued 400,000 shares of $4 par value common stock at the time of its incorporation. The stock was issued for cash at a price of $16 per share. During the first year of operations, the company sustained a net loss of $100,000. The year-end balance sheet would show the balance of the Common Stock account to be:
A.$1,600,000.
B.$1,500,000.
C.$6,300,000.
D.$6,400,000.
400,000 x 4 = 1,600,000
46. 11-95.Coronet Corp. has total stockholders' equity of $7,400,000. The company's outstanding capital stock includes 100,000 shares of $10 par value common stock and 20,000 shares of 6%, $100 par value preferred stock. (No dividends are in arrears.) The book value per share of common stock is:
A.$39.
B.$49.
C.$54.
D.$74.
7,400,000 – (20,000 x 100) = 5,400,000; 5,400,000/100,000 = 54
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31, 2009:
Dividends have been declared and paid for 2009.
47. 11-107.Refer to the above data. The average issue price per share of Grant's preferred stock was:
A.$112.
B.$100.
C.$110.
D.$66.
(600,000 + 60,000)/6,000 = $110
48. 12-1.An extraordinary item appears on the income statement before the section on discontinued operations.
TrueFalse
49. 12-3.In determining earnings per share when a preferred stock has dividends in arrears, only the current year's dividend is deducted to arrive at earnings per share.
TrueFalse
50.12-5.In order to receive a dividend, a stockholder must have owned the stock as of the declaration date.
TrueFalse
51. 12-6.A stock dividend provides a stockholder with more shares of stock but his or her percentage of ownership in the company, is no larger than before.
TrueFalse
52. 12-14.In order for a loss on the disposal of a discontinued operation to be classified on the income statement as a discontinued operation, it must be unusual in nature.
TrueFalse
53. 12-15.Extraordinary items and the results of discontinued operations are shown in the income statement net of any related income tax effects.
TrueFalse
54. 12-16.The FASB has not compiled a comprehensive list of what is considered to be an extraordinary item, thus the determination is a matter of judgment.
TrueFalse
55. 12-27.Prior period adjustments appear in the statement of retained earnings and in the income statement for the current year.
TrueFalse
56. 12-28.Discontinued operations should be shown on the statement of retained earnings net of taxes.
TrueFalse
57. 12-34.Stock splits
A.Allow management to conserve cash.
B.Give stockholders more shares.
C.Cause no change in total assets, liabilities, or stockholders' equity.
D.All of the above.
58. 12-37.Treasury stock appears as:
A.An asset account
B.A liability account
C.An expense account
D.An equity account
59. 12-38.Extraordinary items are found on the income statement:
A.Before discontinued operations
B.After discontinued operations
C.Before income from continuing operations
D.After prior period adjustments
60. 12-39.A company had 125,000 shares of common stock outstanding on January 1 and then sold 35,000 additional shares on March 30. Net income for the year was $594,750. What are earnings per share?
A.$4.73
B.$4.58
C.$3.93
D.$6.61
(125,000 x 3/12) + (160,000 x 9/12) = 151,250; 594,750/151,250 = 3.93
61. 12-41.A prior period adjustment is a correction made to:
A.Retained earnings of the beginning of the period
B.Retained earnings at the end of the period
C.Net income of the current year
D.Only to last years' financial statements
62. 12-43.Which of the following would have no effect on Retained Earnings?
A.Declaration of a cash dividend
B.Declaration of a stock dividend
C.Declaration of a stock split.
D.A prior period adjustment
63. 12-46.Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a prior period adjustment, and an extraordinary gain. If Execucomp income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement?
A.Prior period adjustment.
B.Income from continuing operations.
C.Loss from discontinued operations.
D.Extraordinary gain.
64. 12-49.The purpose of developing the subtotals "Income before Extraordinary Items" and "Income from Continuing Operations" in an income statement is to:
A.Assist investors in forecasting future operating results.
B.Increase the amount of reported net income.
C.Decrease the amount of income subject to income taxes.
D.Provide investors with the information necessary to compute earnings per share.
65. 12-52.An example of an extraordinary gain or loss is:
A.A large loss arising from inability to collect an account receivable from a bankrupt customer.
B.A large gain from disposal of a segment of the business.
C.A gain or loss from sale of an expensive machine no longer needed in the business.
D.None of these answers.
66. 12-53.In computing earnings per share, the number of shares used is:
A.The year-end number of shares outstanding.
B.The beginning of the year number of shares outstanding.
C.The average of the beginning and the year-end number of shares outstanding.
D.The weighted average of shares outstanding for the year.
67. 6-45. Gross profit is the difference between:
A.Net sales and the cost of goods sold.
B.The cost of merchandise purchased and the cost of merchandise sold.
C.Net sales and net income.
D.Net sales and all expenses
68. 12-60.Which of the following has no effect on the computation of earnings per share for the current period?
A.The amount of cash dividends declared or paid to preferred stockholders.
B.The amount of cash dividends declared or paid to common stockholders.
C.Net income.
D.The number of shares of common stock authorized.
69. 12-62.To receive the next cash dividend, an investor must purchase the stock before the:
A.Dividend declaration date.
B.Ex-dividend date.
C.Date of record.
D.Payment date announced by the board of directors.
70. 12-63.Dividends become a liability of a corporation:
A.On the date the board of directors declares the dividend.
B.On the date of record.
C.On the date payment is to be made.
D.When cumulative preferred stock dividends are in arrears.
71. 12-66.Dividends are first recorded and retained earnings are reduced on:
A.The ex-dividend date.
B.The date of record.
C.The date of declaration.
D.The date of payment.
72. 12-82.A liquidating dividend:
A.Occurs only when a company is going out of business.
B.Occurs when a corporation pays a dividend that exceeds the balance in the retained earnings account.
C.Is an expense to the corporation.
D.Occurs only when the corporation has a loss for the year.
73. 12-87.Family Fashions Corporation discontinued Kid-Choice, its entire line of children's clothing, in November of 2009. Prior to the disposal, Kid-Choice generated a loss of $600,000 (net of tax) for the period from January through the sale date. Because of the value of the real estate and machinery, there was a gain of $850,000 (net of tax) on the actual sale. How should this situation be reported in the financial statements of Family Fashions for 2009?
A.A $250,000 should be included in the 2009 income statement as an extraordinary item.
B.A $600,000 loss should be included in income from operations and a $850,000 gain reported in the "discontinued operations" section of the income statement.
C.A $250,000 adjustment to beginning retained earnings should be in the statement of retained earnings.
D.A $250,000 gain should be in the "discontinued operations" section of the income statement.
74. 12-91.General Corporation was organized on January 1 and issued 500,000 shares of common stock on that date. On July 1, an additional 200,000 shares were issued for cash. Net income for the year was $5,184,000. Net earnings per share amounted to:
A.$7.41.
B.$7.98.
C.$8.41.
D.$8.64.
(500,000 x 6/12) + (700,000 x 6/12) = 600,000; 5,184,000/ 600,000 = 8.64
75. 12-92.On January 1, 2009, Carleton Corporation had 55,000 shares of $6 par value common stock outstanding. On March 31, 2009, Carleton issued an additional 10,000 shares in exchange for a building. What number of shares will be used in the computation of basic earnings per share for the year 2009?
A.55,000.
B.65,000.
C.62,500.
D.62,000.
(55,000 x 3/12) + (65,000 x 9/12) = 62,500
76. 12-93.Platinum Company reports net income of $520,000 for 2009 and declared a cash dividend of $1 per share on each of its 100,000 shares of common stock outstanding. What are earnings per share for 2009?
A.$5.20 per share.
B.$1.00 per share.
C.$1.20 per share.
D.$4.80 per share
520,000/100,000 = 5.20
77. 12-94.Designs, Inc. had 4,000 shares of $7, $100 par preferred stock and 50,000 shares of common stock outstanding throughout 2009. During 2009, Designs declared a dividend of $7 per share on its common stock. Compute earnings per share for 2009 if Designs' income statement showed net income of $630,000.
A.$7.00 per share.
B.$6.00 per share.
C.$12.04 per share.
D.$12.60 per share.
((630,000 – (4,000 x 7)) / 50,000 = 12.04
78. 13-1.The principal purpose of a statement of cash flows is to measure the profitability of a business that maintains its accounting records on the cash basis.
TrueFalse
79. 13-2.All cash receipts and cash payments not classified as investing or financing activities are classified as indirect activities.
TrueFalse
80. 13-3.Interest paid belongs in the operating section of the statement of cash flows.
TrueFalse
81. 13-8.The purchase of equipment for the manufacturing of inventory belongs in the operations section of the statement of cash flows.
TrueFalse
82. 13-9.In the long run, it is more important for a business to generate positive cash flows from investing activities than from operating activities.
TrueFalse
83. 13-10.Depreciation is a non-cash expense.
TrueFalse
84. 13-11.If accounts receivable decrease during the period, cash received from customers probably exceeds net sales.
TrueFalse
85. 13-15.The FASB permits a company to use the direct method for the statement of cash flows or the indirect method.
TrueFalse
86. 13-24.The purchase or sale of marketable securities is reported in the statement of cash flows as a financing activity.
TrueFalse
87. 13-26.If accounts receivable increased during the year, deducting the increase from net sales determines the amount of cash received.
TrueFalse
88. 13-33.When applying the direct method in a statement of cash flows, the amount of depreciation is added to net income
TrueFalse
89. 13-42.Cash flows from investing activities include all of the following except:
A.Cash proceeds from selling investments
B.Cash proceeds from collections on loans
C.Cash advanced to borrowers
D.Cash proceeds from borrowing
90. 13-45.All of the following are financing activities except:
A.Borrowing money
B.Lending money
C.Selling capital stock
D.Paying dividends
91. 13-47.A statement of cash flows is not intended to assist investors in evaluating:
A.Reasons for differences between the amount of net income and net cash flow from operations.
B.The company's ability to meet its obligations and to pay dividends.
C.Non-cash aspects of investing and financing activities.
D.The profitability of business operations.
92. 13-50.In a statement of cash flows, cash transactions are classified into three major categories. Which of the following is not one of these three categories?
A.Managing activities.
B.Operating activities.
C.Financing activities.
D.Investing activities.
93. 13-53.Which of the following would indicate a cash disbursement?
A.Selling equipment at a loss.
B.A decrease in accounts receivable.
C.An increase in prepaid expenses.
D.A decrease in inventory.
94. 13-58.Which of the following is an investing activity?
A.Purchase of equipment.
B.Payment of interest.
C.Issuing common stock.
D.Issuing long-term debt.
95. 13-60.Which of the following is a financing activity?
A.Payment of interest.
B.Payment of dividends.
C.Making sales on account.
D.Paying off accounts payable.
96. 13-63.Which method will yield higher cash flows from operating activities?
A.The indirect method.
B.The direct method.
C.Both direct and indirect methods will yield the same amount.
D.Depends upon the situation.
97. 13-69.When using the indirect method, depreciation expense:
A.Increases net cash flow from operations.
B.Decreases net cash flow from operations.
C.Does not affect net income.
D.Does not affect net cash flow from operations.
98. 13-82.Which statement is true as to the FASB's position on the presentation of the statement of cash flows?
A.The FASB recommends the use of the indirect method, but most companies use the direct method.
B.The FASB recommends the use of the direct method, but most companies use the indirect method.
C.The FASB recommends the use of the direct method, and most companies use the direct method.
D.The FASB recommends the use of the indirect method, and most companies use the indirect method.
99. 13-85.Hamilton Company reported an increase of $370,000 in its accounts receivable during the year 2009. The company's statement of cash flows for 2009 reported $1 million of cash received from customers. What amount of net sales must Hamilton have recorded in 2009?
A.$630,000.
B.$1,370,000.
C.$1,000,000.
D.$370,000
1,000,000 + 370,000 = 1,370,000
100. GAAP stands for which of the following:
- Generally acknowledged accounting principle.
- Generally accepted accounting practice.
- Generous accepted accounting principle.
- Generally accepted accounting principle.
Page 1 of 11