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Exam 12: Income and Changes in Retained Earnings

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Question 61

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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.

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Question 62

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A restriction of retained earnings:

A) Reduces the dollar amount of retained earnings shown in the balance sheet.
B) Appears in the statement of retained earnings as a reduction of ending retained earnings.
C) Appears in the liability section of the balance sheet.
D) Limits the dollar amount of dividends a corporation may declare.

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Question 63

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According to the Sarbanes-Oxley Act, lying to an external auditor can create a criminal penalty as well as a civil penalty.

The stockholders' equity section of the balance sheet of Crammond Corporation at December 31, appears as follows: $\begin{array}{lr} \text {Stockholders' Equity } &\\ \text { \$ 3 preferred stock, \( \$ 100 \) par, 10,000 shares authorized } &\$700,000\\ \text { \( \$ 700,000 \) Common stock, \( \$ 2 \) par, 100,000 shares authorized } &150,000\\ \text {Additional Paid-in Capital: } &\\ \text { From issuance of preferred stock } & 180,000 \\\text { From issuance of common stock } & 725,000 \\\text { Total paid-in capital } & 1,755,000 \\\text { Retained earnings } & \$ 250,000 \\\text { Total Stockholders' equity } & \$ 2,605,000\end{array}$ -Refer to the information above. How many shares of common stock are outstanding?

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

The amount transferred out of retained earnings when a 4% stock dividend is declared is equal to the prevailing market value per share times the number of dividend shares to be distributed.

Stock dividends What is the effect of a stock dividend?

Sovereign Foods suffered a $1,500,000 loss (net of tax) when the FDA prohibited the sale of food products containing red dye no. 3. On its other products, Sovereign Foods had net sales of $6,580,000 and costs and other expenses of $6,505,000. Which of the following statements is not true? (Ignore taxes)

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

It would be reasonable to assume that:

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

The stockholders' equity section of the balance sheet of Caesar Corporation at December 31, 2009, appears as follows: (The company engaged in no treasury stock transactions prior to 2009) $\begin{array}{lrr} \text { Stockholders' Equity } &\\ \text { \$ 2 preferred stock, \$100 par, 10,000 shares authorized, 8,000 shares issued } &\$800,000\\ \text { Common stock, \( \$ 2 \) par, 100,000 shares authorized, 75,000 shares } &\\ \text {issued, 5,000 are held in the treasury } &150,000\\\\ \text { Additional Paid-in Capital: } &\\\text { From issuance of preferred stock } & 80,000 \\\text { From issuance of common stock } & 225,000 \\\text { From treasury stock transactions } & 8,000 \\\text { From common stock dividends } & 26,000\\ \text { Total paid-in capital } &1,289,000\\ \text {Retained earnings ( \( \$ 40,000 \) equal to cost of treasury stock is } &\\ \text { not available for dividends) } &500,000\\&1,789,000\\ \text {Less treasury stock (at cost: 5,000 common shares) }&(40,000) \\ \text {Total Stockholders' equity}&\$1,749,000\end{array}$ -Refer to the information above. What was the average issue price per share of preferred stock?

An extraordinary item appears on the income statement before the section on discontinued operations.

A liquidating dividend:

Accounting terminology Listed below are nine technical accounting terms introduced in this chapter: Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. ____ (a) A financial statement showing the revenue, expenses, and net earnings of a corporation during the current accounting period. ____ (b) A distribution of cash to stockholders. ____ (c) A distribution to stockholders of additional shares of stock, accompanied by a proportionate reduction in the par value per share. ____ (d) The market price of a share of preferred stock, divided by the net income of the corporation. ____ (e) A correction in the amount of net income reported in an earlier accounting period. ____ (f) An event that is material in dollar amount, unusual in nature, and not expected to recur in the foreseeable future. ____ (g) A subtotal sometimes included in an income statement to assist investors in forecasting the income of future accounting periods. $\begin{array} { | l | l | } \hline \text { Cash dividend } & \text { Price-earnings ratio } \\\hline \text { Stock dividend } & \text { Income from continuing operations } \\\hline \text { Stock split } & \text { Statement of retained earnings } \\\hline \text { Earnings per share } & \text { Prior period adjustment } \\\hline \text { Extraordinary item } & \\\hline\end{array}$

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

At the beginning of the current year, Elite Corporation had 200,000 shares of $1 par common stock outstanding and had retained earnings of $4,800,000. During the year, the company earned $1,675,000, declared a 10% stock dividend when the price of stock was $28 per share, and paid a year-end cash dividend of $3 per share. (The cash dividend was paid after the stock dividend had been distributed.) What was Elite Corporation's retained earnings at the end of the year?

The following two items are disclosed in the stockholders' equity section of Cort Corporation's December 31, 2010, balance sheet: Treasury stock (500 shares, at cost) $50,000 Additional paid-in capital: treasury stock transactions 22,500 If the company had reacquired 3,000 shares of treasury stock in February of 2010 then some of the treasury stock must have been sold during 2010 for:

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

The price-earnings ratio is the: