Reference no: EM132961663
Questions -
Q1. Reclassification adjustments must be shown in the financial statement that discloses comprehensive income
A. to show the tax effect of items in comprehensive income
B. to avoid double counting in comprehensive income items, which are currently displayed in net income
C. to show what portion of comprehensive income is from the realization of current assets
D. to avoid including transactions with shareholders in items of comprehensive income
Q2. The Potter Corporation reports net income for Year One of $1,500,000. The company had 260,000 shares of common stock outstanding for the entire year as well as 43,000 shares of preferred stock. The common stock was paid $2 per share as a dividend while the preferred shareholders received $4 per share. The common stock had an average price for the year of $50 per share while the preferred stock had an average price of $120 per share. The company also had 60,000 stock options outstanding for the year. For $31, each option could be converted into a share of common stock. The effective tax rate is 30 percent. What should the company report as its diluted earnings per share (rounded) for Year One?
A. $4.36
B. $3.56
C. $4.93
D. $4.70
Q3. For Year One, the Pandora Company reports net income of $1,200,000. The company has 50,000 shares of nonconvertible preferred stock outstanding paying $6 per share each year in cumulative dividends. The company has 200,000 shares of common stock outstanding throughout the current year. In addition, the company issued 12,000 convertible bonds at face value several years ago. Each bond has a face value of $1,000 and is convertible into 7 shares of common stock. These bonds pay interest of 8 percent per year. The effective income tax rate is 30 percent. What is diluted earnings per share (rounded) for Year One?
A. $6.59
B. $3.17
C. $6.55
D. $5.54
Q4. The Jennings Company reports net income of $1,100,000 for the current year. The company has 60,000 shares of nonconvertible preferred stock outstanding for the entire year that pays an annual cash dividend of $8 per share. A cash dividend of $96,000 is paid on the common stock. At the beginning of the year, the company has 100,000 shares of common stock outstanding. On June 1, 40,000 shares of this stock were reacquired by the company as treasury stock. The company also has 50,000 stock options outstanding. For $25 each option can be used to obtain one new share of common stock. The average price of the stock for this year was $100 per share. No income effect was recognized this year in connection with the issuance of these stock options. The company's effective tax rate was 30 percent. What should the company report as its diluted earnings per share?
A. $5.43
B. $9.64
C. $4.59
D. $6.36
Q5. The Johnson Company is computing diluted earnings per share for the current year. The company has convertible bonds outstanding that have been judged as being anti-dilutive. What is the significance of anti-dilution?
A. Because of the high rate of interest on these bonds, the impact must be separately disclosed within the computation
B. Inclusion of the bonds in the computation will cause the reported figure to increase so that the potential conversion of the bonds should be excluded
C. The bonds must be included in the computation of diluted earnings per share
D. Inclusion of the bonds in the computation must be made using the most conservative method
Q6. A company has 600,000 shares of common stock outstanding on January 1 of the current year but issues another 90,000 shares on August 1. In addition, the company has 50,000 shares of preferred stock that pays a $5 per share dividend each year. These shares can each be converted into four shares of the company's common stock. The company reports net income for the current year of $850,000. It has an effective tax rate of 30 percent. What is diluted earnings per share (rounded)?
A. $1.24
B. $1.01
C. $0.72
D. $1.31
Q7. A company reports net income of $300,000 and is currently computing its basic earnings per share for the year. The company has 10,000 shares of preferred shares outstanding. This preferred stock pays a cumulative dividend of $2 per year. How does this preferred stock dividend impact the computation of basic earnings per share?
A. The dividend must be subtracted from net income but only if actually paid during the year
B. The dividend must be subtracted from net income but only if actually declared by the Board of Directors during the year
C. The dividend must be subtracted from net income but only if anti-dilutive
D. The dividend must be subtracted from net income in all cases
Q8. At the end of Year One, the Pratt and Whitney Company reported net income of $650,000. The company paid cash dividends of $60,000 per quarter on its preferred stock and $40,000 per quarter on its common stock. The company started the year with 120,000 shares (common stock) and 30,000 shares (preferred stock) outstanding. On May 1, the company issued an additional 42,000 shares of common stock and 12,000 shares of preferred stock. What should the company report as its basic earnings per share (rounded)?
A. $3.20
B. $2.30
C. $1.69
D. $2.77