The price-earnings ratio is the:

Market price of a share of common stock divided by EPS.

Book value of a share of common stock divided by EPS.

Par value of a share of common stock divided by EPS.

Market price divided by book value of a share of stock.

Which of the following would have no effect on Retained Earnings?

Declaration of a cash dividend.

Declaration of a stock dividend.

Doogle Corporation sold a segment of its operations in 2009 and suffered an extraordinary loss in 2010. Which of the following would be the most useful in attempting to predict Doogle's performance for 2011?

Doogle's income from continuing operations in 2009 and 2010.

Doogle's net income in 2009 and 2010.

Doogle's total assets at the end of 2010.

Doogle's retained earnings at the end of 2010.

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's 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?

Loss from discontinued operations.

Large stock dividends tend to:

Have no effect upon stock prices

The purpose of developing the subtotals "Income before Extraordinary Items" and "Income from Continuing Operations" in an income statement is to:

Assist investors in forecasting future operating results.

Increase the amount of reported net income.

Decrease the amount of income subject to income taxes.

Provide investors with the information necessary to compute earnings per share.

To qualify as an extraordinary item, a gain or loss must:

Be material in amount, unusual in nature, and not expected to recur.

Affect the income of a prior period.

Be larger in amount than any other item in the income statement

Be associated with a segment of the business that has been discontinued during the current period.

Which of the following would be classified as an extraordinary item?

A loss from a natural disaster that affects the company at infrequent intervals

A large gift given to the company.

A loss from obsolete inventory.

A loss from an enacted law that made inventory unsalable.

An example of an extraordinary gain or loss is:

A loss due to the expropriation of assets by a foreign government.

A large loss arising from inability to collect an account receivable from a bankrupt customer.

A large gain from disposal of a segment of the business.

A gain or loss from sale of an expensive machine no longer needed in the business.

In computing earnings per share, the number of shares used is:

The weighted average of shares outstanding for the year.

The year-end number of shares outstanding.

The beginning of the year number of shares outstanding.

The average of the beginning and the year-end number of shares outstanding.

The amount of earnings per share is usually computed:

For common stock by deducting the dividends on preferred stock from net income and dividing the remaining amount by the weighted average number of common shares outstanding.

For both preferred and common stock.

By dividing net income by the combined number of preferred and common shares.

On the basis of the number of shares outstanding at year-end, regardless of changes in the number of shares during the year.

Which of the following statistics is generally computed for both common and preferred stock?

Price-earnings ratio (p/e ratio).

All things being equal, if investors expect earnings to increase substantially from current levels, the price/earnings ratio will:

Not be affected by income expectations.

The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings (i.e., at a p/e ratio of 20). What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?

An increase in market price of approximately $2 per share.

An increase in market price of approximately 10 cents per share.

A reduction in the p/e ratio due to the larger EPS.

Nothing, since market price reflects expectations of future earnings.

Which of the following has no effect on the computation of earnings per share for the current period?

The amount of cash dividends declared or paid to common stockholders.

The amount of cash dividends declared or paid to preferred stockholders.

The number of shares of common stock authorized.

Diluted earnings per share is a hypothetical computation to warn stockholders what could happen if:

Convertible securities are converted into shares of common stock.

Loss contingencies turn out adversely.

Extraordinary losses were to recur.

Consideration was given to the loss from operations discontinued during the current period.

To receive the next cash dividend, an investor must purchase the stock before the:

Payment date announced by the board of directors.

Dividends become a liability of a corporation:

On the date the board of directors declares the dividend.

On the date payment is to be made.

When cumulative preferred stock dividends are in arrears.

When a company reports both diluted earnings per share and basic earnings per share:

Basic EPS would be greater than fully diluted EPS.

Basic EPS would be less than fully diluted EPS.

Basic EPS may be either greater or less than fully diluted EPS.

Both should never be shown - only one would be reported.

A liquidating dividend:

Represents a return of invested capital to a corporation's owners, the stockholders.

Occurs when a corporation distributes shares of its own stock as a dividend, rather than cash.

Occurs whenever a corporation distributes non-cash assets as a dividend to its stockholders.

Represents a distribution of a corporation's profits to the stockholders.

As a result of a 5% stock dividend:

The number of shares owned by each stockholder increases by 5%, but total stockholders' equity does not change.

Total stockholders' equity decreases by 5%.

The par value per share decreases by 5%.

Both the number of shares outstanding and the total stockholders' equity increase by 5%.

If a company presents both the basic and diluted earnings per share, the price/earnings ratio is based on:

The average of the basic and diluted figures.

A combination of the basic and diluted figures.

A large stock dividend and a stock split are similar in that they both cause a:

Reduction in the market price per share.

Reduction in total stockholders' equity.

Reduction in retained earnings.

Reduction in the par value per share.

Supervox Corporation declared a 3-for-2 common stock split, but this transaction was erroneously recorded as a 50% common stock dividend. As a result:

Retained earnings is understated.

The total dollar amount of stockholders' equity is overstated.

The corporate records do not show the correct number of shares of common stock outstanding.

The common stock account is understated.

Declaration and distribution of a stock dividend cause each of the following effects except:

A decrease in total assets of the issuing corporation.

An increase in the number of shares of stock outstanding

A decrease in retained earnings.

An increase in legal capital of the issuing corporation.

A 2-for-1 stock split:

Should logically cause the market price per share to drop by approximately 50%.

Is accounted for in the same way as a 100% stock dividend.

Increases the number of outstanding shares of common stock, but par value per share remains the same as before the split.

Is recorded by transferring the par value of additional shares from retained earnings to the common stock account.

If a material accounting error was made in a prior year, that error:

Should be reflected, net of taxes, on the retained earnings statement.

Should be reflected on the current year's income statement.

Should be reflected as a change in accounting principle

Should be considered as an extraordinary item, and shown, net of taxes, on the income statement.

When a stock dividend is declared, total stockholders' equity will:

Increase or decrease, depending upon certain variables.

Which of the following would be treated as a prior period adjustment by Gold Corporation in 2010?

In 2010, it was discovered that Gold Corporation recorded the purchase of a warehouse in 2007 as a debit to Repairs Expense.

In 2010, Gold Corporation switched from the straight-line method of depreciation to another method of computing depreciation.

In 2010, Gold Corporation's management decided that the estimated useful life of its computer equipment should be changed from five years to nine years.

In 2010, Gold Corporation sold a segment of the business that it has operated since 1996.

A prior period adjustment appears in:

The statement of retained earnings, as an adjustment to the beginning balance of retained earnings.

The income statement following the subtotal "Income before Prior Period Adjustments."

The statement of retained earnings, as an adjustment to the ending balance of retained earnings.

Footnotes to the financial statements

After preparing the financial statements for 2011, the accountant for the Dawson Corporation discovered that a prior period adjustment had been omitted from the 2009 financial statements. Which of the following is most likely to require correction as a result of this oversight?

Ending retained earnings at December 31, 2011.

Earnings per share as originally computed.

Net income for 2011 as originally reported.

Extraordinary items as originally reported.

A prior period adjustment appears in the financial statements of the current year when:

An error was made in measuring the net income of a previous year or years.

An error was made in computing the net income of the current period.

An extraordinary loss in a prior year was included among normal results of operations in the prior year.

Earnings per share figures from prior years are restated to reflect the increased number of shares outstanding due to a stock split or a stock dividend.

A restriction of retained earnings:

Limits the dollar amount of dividends a corporation may declare.

Reduces the dollar amount of retained earnings shown in the balance sheet.

Appears in the statement of retained earnings as a reduction of ending retained earnings.

Appears in the liability section of the balance sheet.

Which of the following items would not reduce retained earnings?

Cash payment of a previously declared dividend.

A liquidating dividend:

Occurs when a corporation pays a dividend that exceeds the balance in the retained earnings account

Occurs only when a company is going out of business.

Is an expense to the corporation.

Occurs only when the corporation has a loss for the year.

The statement of stockholders' equity:

May be issued as a substitute for the statement of retained earnings.

Is a required financial statement

Shows the changes during the year in all stockholders' equity accounts except retained earnings.

Is a statement sent to each stockholder showing that person's return on equity.

A statement of stockholders' equity discloses each of the following except:

The market value of the stockholders' equity at the end of the year.

The cost of treasury stock owned at the end of the year.

Net income for the current year.

The amount of cash dividends declared during the current year.

Which of the following items would be included in comprehensive income but not reported as a component of net income?

An unrealized gain on the portfolio of available-for-sale marketable securities.

A lower-of-cost-or-market write-down of inventory.

A material loss due to natural disaster.

A gain on the sale of a segment of the business.

Which of the following items would be included in the discontinued operations section of the income statement?

Both the income or loss from operating the segment prior to its disposal, and the gain or loss on disposal of the segment.

Income or loss from operating the segment prior to its disposal.

The gain or loss on disposal of the segment.

Only losses and not gains on the disposal of a segment.

ch12

Authored by Tolganay Zhunisbay

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1st Grade

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49 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Stock splits:

Allow management to conserve cash.

Give stockholders more shares.

Cause no change in total assets, liabilities, or stockholders' equity.

Allow management to conserve cash, give stockholders more shares, and cause no change in total assets, liabilities, or stockholders' equity.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

It would be reasonable to assume that:

Basic earnings per share should exceed diluted earnings per share.

Diluted earnings per share should exceed basic earnings per share.

Basic earnings per share should be equal to diluted earnings per share.

Basic earnings per share would not be presented with diluted earnings per share.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A small stock dividend is recorded at:

Market value.

Book value

Par value

No amount, just a memorandum entry is required.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Treasury stock appears as:

An asset account.

A liability account.

An expense account.

An equity account.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Extraordinary items are found on the income statement:

Before discontinued operations.

After discontinued operations.

Before income from continuing operations.

After prior period adjustments.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A company failed to make an adjusting entry in the prior year to accrue earned revenue. To correct this they should:

Correct last year's statement by increasing net income.

Correct this year's statements with a prior period adjustment increasing beginning retained earnings.

Correct this year's statements with a prior period adjustment decreasing beginning retained earnings.

Correct this year's statements with a prior period adjustment increasing ending retained earnings.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A prior period adjustment is a correction made to:

Retained earnings of the beginning of the period.

Retained earnings at the end of the period.

Net income of the current year.

Only to last years' financial statements.

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