(Multiple Choice)
1. 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. Issuance of stock warrants
b. Purchase of treasury stock
c. Sale of additional common stock
d. Declaration and payment of stock dividend

2. In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be
a. Deducted from net income only if declared
b. Deducted from net income whether declared or not
c. Added back to net income whether declared or not
d. Disregarded

3. Redford Corporation€™s capital structure at December 31, 2006 was as follows:
Shares Issued
and Outstanding
Common stock ........... 100,000
Nonconvertible preferred stock ..... 20,000
On July 2, 2007, Redford issued a 10% stock dividend on its common stock, and paid a cash dividend of $2.00 per share on its preferred stock. Net income for the year ended December 31, 2007 was $780,000. What should be Redford€™s 2007 basic earnings per share?
a. $7.80
b. $7.09
c. $7.05
d. $6.73

4. Faucet Company has 2,500,000 shares of common stock outstanding on December 31, 2006. An additional 500,000 shares of common stock were issued on April 2, 2007, and 250,000 more on July 2, 2007. On October 1, 2007, Faucet issued 5,000, $1,000 face value, 7% convertible bonds. Each bond is dilutive and convertible into 40 shares of common stock. No bonds were converted into common stock in 2007. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2007?
a. 2,875,000 and 2,925,000
b. 2,875,000 and 3,075,000
c. 3,000,000 and 3,050,000
d. 3,000,000 and 3,200,000

5. At December 31, 2007, Gravin Corporation had 90,000 shares of common stock and 20,000 shares of convertible preferred stock outstanding, in addition to 9% convertible bonds payable in the face amount of $2,000,000. During 2007, Gravin paid dividends of $2.50 per share on the preferred stock. The preferred stock is convertible into 20,000 shares of common stock. The 9% convertible bonds are convertible into 30,000 shares of common stock. Net income for 2007 was $970,000. Assume an income tax rate of 30%. How much is the diluted earnings per share for the year ended December 31, 2007?
a. $7.83
b. $8.82
c. $9.35
d. $10.22

6. A prior period adjustment should be reflected, net of applicable income taxes, in the financial statements of a business entity in the
a. Retained earnings statement after net income but before dividends
b. Retained earnings statement as an adjustment of the opening balance
c. Income statement after income from continuing operations
d. Income statement as part of income from continuing operations

7. Cash dividends on the $10 par value common stock of Ray Company were as follows:
1st quarter of 2007 $ 800,000
2nd quarter of 2007 900,000
3rd quarter of 2007 1,000,000
4th quarter of 2007 1,100,000
The 4th-quarter cash dividend was declared on December 21, 2007 to stockholders of record on December 31, 2007. Payment of the 4th-quarter cash dividend was made on January 18, 2008.
In addition, Ray declared a 5% stock dividend on its $10 par value common stock on December 3, 2007 when there were 300,000 shares issued and outstanding and the market value of the common stock was $20 per share. The shares were issued on December 24, 2007.
What was the effect on the stockholders€™ equity accounts of Ray Company as a result of the preceding transactions?

8. The following information was abstracted from the accounts of the Oar Corporation at December 31, 2007:
Total income since incorporation ........ $840,000
Total cash dividends paid ........... 260,000
Proceeds from sale of donated stock .......... 90,000
Total value of stock dividends distributed ........ 60,000
Excess of proceeds over cost of treasury stock sold . 140,000
What should be the current balance of retained earnings?
a. $520,000
b. $580,000
c. $610,000
d. $670,000

9. Effective April 27, 2007 the stockholders of Bennett Corporation approved a two-for-one split of the company€™s common stock, and an increase in authorized common shares from 100,000 shares (par value $20 per share) to 200,000 shares (par value $10 per share). Bennett€™s stockholders€™ equity accounts immediately before issuance of the stock split shares were as follows:
Common stock, par value $20; 100,000 shares authorized; 50,000 shares outstanding $1,000,000
Additional paid-in capital (premium of $3 per share on issuance of common stock) . 150,000
Retained earnings ........................... 1,350,000
What should be the balances in Bennett€™s additional paid-in capital and retained earnings accounts immediately after the stock split is effected?

10. Newton Corporation was organized on January 1, 2005. On that date it issued 200,000 shares of $10 par value common stock at $15 per share (400,000 shares were authorized). During the period January 1, 2005 through December 31, 2007, Newton reported net income of $750,000 and paid cash dividends of $380,000. On January 5, 2007, Newton purchased 12,000 shares of its common stock at $12 per share. On December 28, 2007, 8,000 treasury shares were sold at $8 per share. Newton used the cost method of accounting for treasury shares. What is the total stockholders€™ equity of Newton as of December 31, 2007?
a. $3,290,000
b. $3,306,000
c. $3,338,000
d.$3,370,000

Transcribed Image Text:

Additional Paid-in Capital 0 Retained Earnings $3,800,000 dr $3,950,000 dr S4,100,000 dr $3,800,000 dr Common Stock a. b. $150,000 Cr C, $150,000 cr d. $300,000 cr $150,000 cr $300,000 dr Additional Paid-in Capital Retained Earnings 500,000 b. 150,000 350,000 $1,350,000 350,000 a. 0 C. 150,000 d. $1,150,000