Accounting Volume 2 Canadian 9th Edition Horngren Test Bank
Accounting Volume 2 Canadian 9th Edition Horngren Test Bank
Objective 14-1
2) The retained earnings account equals all previous periods' net earnings plus any dividends declared
less prior losses.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
5) Stock dividends are similar to cash dividends in that assets of the corporation are transferred to the
shareholders.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
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6) One of the main reasons for stock dividends is to continue dividends but to retain cash.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
8) The value assigned to a stock dividend is the market value on the declaration of the shares to be
distributed as a stock dividend.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
9) The statement of Retained Earnings will always show an increase for dividends declared in the year.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
11) The declaration of a stock dividend creates a current liability for the corporation.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
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12) Common stock dividend distributable is a liability account on the balance sheet.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
13) Common stock dividend distributable is an equity account on the balance sheet.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
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18) A share dividend has no effect on assets or liabilities.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
19) Increasing the use of stock dividends will increase the market value of a firm's stock.
Answer: FALSE
Diff: 3 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Comprehension
Objective: 14-1 Account for stock dividends and stock splits
20) Stock dividends require the use of the company's cash when the shareholders cash them in.
Answer: FALSE
Diff: 3 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
21) Kelly Corporation has experienced profits greater than losses in the past four years since
incorporation. Which of the following is true?
A) Retained earnings has a debit balance at the end of the fourth year.
B) Retained earnings has a credit balance at the end of the fourth year.
C) Retained earnings on the balance sheet will cause a reduction in total shareholders' equity.
D) Retained earnings will not appear on the balance sheet
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
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23) A proportional distribution by a corporation of its own shares to its shareholders is a:
A) liquidating dividend
B) property dividend
C) cash dividend
D) stock dividend
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
26) A shareholders' ownership percentage in the shares of a corporation ________ upon the distribution
of a stock dividend.
A) increases
B) decreases
C) can increase or decrease depending on the type of stock dividend
D) will stay the same
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Comprehension
Objective: 14-1 Account for stock dividends and stock splits
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27) When a corporation declares a 15% stock dividend, retained earnings will be:
A) debited for the new shares times the average issue price of all of the existing shares
B) debited for the new shares times the current market value of the shares
C) credited for the new shares times the book value of the shares
D) credited for the new shares times the current market value of the shares
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
Table 14-1
The board of directors declares a 10% stock dividend. There are 20,000 common shares authorized and
10,000 outstanding common shares. The current market price of the shares is $12 per share; the average
issue price was $10 per share.
28) Refer to Table 14-1. The journal entry will require a debit to retained earnings for:
A) $10,000
B) $12,000
C) $20,000
D) $24,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
29) Refer to Table 14-1. The entry to distribute the shares will require a:
A) debit to common shares for $10,000
B) debit to common stock dividend distributable for $10,000
C) debit to common stock dividend distributable for $12,000
D) debit to retained earnings for $24,000
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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30) Which of the following will reduce retained earnings?
A) a 3-for-1 stock split
B) declaration of a 15% stock dividend
C) distribution of a 15% stock dividend
D) payment of a $0.50 per share cash dividend
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
33) The common stock dividend distributable account will appear on the balance sheet:
A) in the shareholders' equity section before common shares
B) as a contra account to common shares
C) in the shareholders' equity section after common shares
D) This account is an income statement account and would not appear on the balance sheet.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
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Table 14-2
Following is the shareholders' equity section of the balance sheet of Thomson Corporation:
Contributed capital
Preferred shares, $8, cumulative, 25,000 shares
authorized, 5,000 shares issued $ 516,000
Common shares, 100,000 shares authorized, 40,000
shares issued 320,000
Total contributed capital 836,000
Retained earnings 290,000
Total shareholders' equity $1,126,000
The preferred shares are currently selling for $102.25 per share and the common shares are currently
selling for $11.50 per share.
34) Refer to Table 14-2. The entry to record the declaration of a 10% common stock dividend includes a:
A) debit to retained earnings for $46,000
B) credit to common shares for $51,125
C) debit to common stock dividend distributable for $46,000
D) credit to retained earnings for $46,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
35) Refer to Table 14-2. The total contributed capital after the declaration of a 10% common stock
dividend is:
A) $862,000
B) $856,000
C) $836,000
D) $882,000
Answer: D
Diff: 3 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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36) Refer to Table 14-2. The entry to record the distribution of a 10% common stock dividend includes a:
A) debit to dividends payable for $46,000
B) credit to common shares for $46,000
C) debit to retained earnings for $46,000
D) credit to cash for $46,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
37) Refer to Table 14-2. The total shareholders' equity after the distribution of a 10% common stock
dividend is:
A) $1,152,000
B) $1,146,000
C) $1,126,000
D) $1,172,000
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
38) Refer to Table 14-2. The balance in the common shares account after the declaration of a 10% common
stock dividend is:
A) $320,000
B) $836,000
C) $290,000
D) $366,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
39) Refer to Table 14-2. The number of common shares issued after the declaration of a 10% common
stock dividend is:
A) 44,000
B) 40,000
C) 100,000
D) 104,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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40) Refer to Table 14-2. The entry to record the declaration of a 60% common stock dividend when the
shares have a current market price of $15 per share includes a:
A) debit to retained earnings for $360,000
B) credit to common shares for $360,000
C) debit to common stock dividend distributable for $360,000
D) debit to common shares for $240,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
41) Refer to Table 14-2. The total contributed capital after the distribution of a 60% common stock
dividend is:
A) $290,000
B) $1,196,000
C) $1,126,000
D) $836,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
42) Refer to Table 14-2. The entry to record the distribution of a 60% common stock dividend when the
shares have a current market price of $15 per share includes a:
A) debit to common dividends payable for $360,000
B) credit to common stock dividend distributable for $360,000
C) debit to retained earnings for $360,000
D) credit to common shares for $360,000
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
43) Refer to Table 14-2. The total shareholders' equity after the distribution of a 60% common stock
dividend is:
A) $1,196,000
B) $1,246,000
C) $1,126,000
D) $836,000
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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44) Refer to Table 14-2. The balance in the common shares account after the distribution of a 60% common
stock dividend is:
A) $516,000
B) $680,000
C) $320,000
D) $836,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
45) Refer to Table 14-2. The number of common shares issued after the distribution of a 60% common
stock dividend is:
A) 124,000
B) 64,000
C) 40,000
D) 100,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
46) Which of the following is needed when declaring a common stock dividend?
A) number of common shares authorized
B) number of preferred shares authorized
C) number of preferred shares issued
D) number of common shares issued
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
47) Helen Randall owns 2,500 common shares in Holister Corporation, for which she paid $8,500. Holister
Corporation declared a 2-for-1 stock split. Her average cost per share after the stock split is:
A) $2.27
B) $3.40
C) $1.70
D) $0.85
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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48) A 2-for-1 stock split has the same affect on the number of shares outstanding as a:
A) 20% stock dividend
B) 50% stock dividend
C) 100% stock dividend
D) 200% stock dividend
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Analysis
Objective: 14-1 Account for stock dividends and stock splits
49) The board of directors announces a 2-for-1 stock split on 20,000 outstanding common shares, with an
average issue price of $15. Immediately after the stock split, the:
A) book value of the shares increases to $30 per share
B) issued shares decrease to 10,000
C) average issue price of the shares remains the same
D) issued and outstanding shares increase to 40,000
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
50) In a 2-for-1 stock split, the balance in the common shares account:
A) is cut in half
B) remains the same
C) doubles
D) triples
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
241
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52) The declaration of a 2-for-1 stock split appears on which financial statement?
A) income statement
B) balance sheet
C) statement of retained earnings
D) does not appear on any financial statement
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
Table 14-6
Following is the shareholders' equity section of the balance sheet of Thomson Corporation:
Contributed capital
Preferred shares, $6, cumulative, 25,000 shares
authorized, 7,000 shares issued $ 700,000
Common shares, 1,000,000 shares authorized, 500,000
shares issued 2,500,000
Total contributed capital 3,200,000
Retained earnings 990,000
Total shareholders' equity $4,190,000
The preferred shares are currently selling for $89.50 per share and the common shares are currently
selling for $12.50 per share.
53) Refer to Table 14-6. The entry to record the declaration of a 5% common stock dividend includes a:
A) debit to retained earnings for $312,500
B) credit to common shares for $312,500
C) debit to common stock dividend distributable for $125,000
D) debit to retained earnings for $125,000
Answer: A
Explanation: A) (500,000 shares × 0.05) × $12.50 = $312,500
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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54) Refer to Table 14-6. The total contributed capital after the declaration of a 5% common stock dividend
is:
A) $3,075,000
B) $3,325,000
C) $3,200,000
D) $3,512,500
Answer: D
Explanation: D) $3,200,000 + $312,500 = $3,512,500
Diff: 3 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
55) Refer to Table 14-6. The total shareholders' equity after the distribution of a 5% common stock
dividend is:
A) $4,315,000
B) $3,877,500
C) $4,190,000
D) $4,502,500
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
56) Refer to Table 14-6. The balance in the common shares account after the declaration of a 5% common
stock dividend is:
A) $2,500,000
B) $2,625,000
C) $2,812,500
D) $3,200,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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Match the following.
A) retained earnings
B) declaration date of dividend
C) stock dividend
D) stock split
E) reverse stock split
F) payment date of dividend
G) record date of dividend
57) An account whose balance is the cumulative, lifetime earnings of a company less its cumulative losses
and dividends
Diff: 1 Type: MA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
58) An increase in the number of outstanding shares coupled with a proportionate reduction in the book
value of the shares
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
59) The date with respect to a cash dividend where the liability is created and the retained earnings are
reduced
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
60) The date with respect to a cash dividend that determines which shareholder will be receiving the
dividend
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
61) The date with respect to a cash dividend where the liability is reduced and the payment is made to
the shareholder
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
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62) Affects only the accounts within shareholders' equity
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
64) A stock split where the number of shares outstanding are reduced
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
245
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65) EverClean Corporation reported the following shareholders' equity on January 1, 2014:
Contributed capital
Preferred shares, $2.50, cumulative, 30,000
shares authorized, 7,500 shares issued $ 393,750
Common shares, 200,000 shares
authorized, 135,000 shares issued 607,500
Total contributed capital 1,001,250
Retained earnings 218,500
Total shareholders' equity $1,219,750
a) On June 15, 2014, the board of directors declared a 10% common stock dividend when the market
price of the shares was $7.00 per share. On July 15, 2014, the stock dividend was distributed to the
shareholders. Prepare the necessary journal entries to record the declaration and distribution of the
common stock dividend.
b) What effect did the declaration of the common stock dividend have on:
1) total assets
2) total liabilities
3) total contributed capital
4) total shareholders' equity
General Journal
Date Accounts Debit Credit
Answer:
a) General Journal
Date Accounts Debit Credit
June 15 Retained Earnings 94,500
Common Stock Dividend Distributable 94,500
b) 1) no effect
2) no effect
3) increase of $94,500
4) no effect
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
246
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66) Following is the shareholders' equity section of the balance sheet of Downing Corporation as of
November 1, 2013:
Nov. 1 Declared the required annual cash dividend on the preferred shares and a $0.50
dividend on the common shares.
15 Paid the dividends declared on November 1.
16 Declared a 10% common stock dividend. The market value of the common shares is $15.00
per share.
26 Distributed the common stock dividend declared on November 16.
30 The board of directors announced a 2-for-1 stock split.
Show the dollar amount of the effect of each transaction on both total contributed capital and total
shareholders' equity.
Answer:
Date Total Contributed Capital Total Shareholders' Equity
Nov. 1 no effect decrease of $79,500
15 no effect no effect
16 increase of $180,000 no effect
26 no effect no effect
30 no effect no effect
Diff: 3 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Comprehension
Objective: 14-1 Account for stock dividends and stock splits
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67) Rice Corporation reported the following shareholders' equity items on December 31, 2014:
1) How many common shares would be outstanding if Rice Corporation declares a 4-for-1 stock split?
2) Prepare the journal entry if Rice Corporation declared a 15% stock dividend on the common shares
when the market price of common shares was $130 per share.
3) Prepare the journal entry if Rice Corporation declared a 45% stock dividend on the common shares
when the market price of common shares was $130 per share.
4) Give the journal entry to record the sale of 800 common shares for $125 per share.
Answer:
1) 20,000
General Journal
Date Accounts Debit Credit
2) Retained Earnings 97,500
Common Stock Dividend Distributable 97,500
4) Cash 100,000
Common Shares 100,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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68) Answer each of the following independent questions.
a) Use the words "no effect," "increase," or "decrease" to indicate the effects of stock dividends and
stock splits on the following items:
b) Explain how errors from prior accounting periods are reported on a company's financial
statements.
Answer:
a)
Stock Split Stock Dividend
Retained earnings account No effect Decrease
Total shareholders' equity No effect No effect
Number of shares authorized Increase No effect
Number of shares issued Increase Increase
Total assets and liabilities No effect No effect
Common shares $ amount No effect Increase
b) Errors from prior accounting periods are shown as corrections to the beginning balance of retained
earnings .
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-1 Account for stock dividends and stock splits
249
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Table 14-5
Following is the shareholders' equity section of the balance sheet of Bradson Ltd.:
Contributed capital
Preferred shares, $2, cumulative, 75,000 shares
authorized, 10,000 shares issued $ 300,000
Common shares, 400,000 shares authorized, 50,000
shares issued 400,000
Total contributed capital 700,000
Retained earnings 490,000
Total shareholders' equity $1,190,000
The preferred shares are currently selling for $34.00 per share and the common shares are currently
selling for $12.00 per share.
69) Refer to Table 14-5. The total contributed capital after the declaration of a 10% common stock
dividend is: __________.
Answer: $700,000 + (50,000 × 10% × $12.00) = $760,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
70) Refer to Table 14-5. The total contributed capital after the declaration of a 20% common stock
dividend is: __________.
Answer: $700,000 + (50,000 × 20% × $12.00) = $820,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
71) Refer to Table 14-5. The balance of retained earnings after the declaration of a 10% common stock
dividend is: __________.
Answer: $490,000 - (50,000 × 10% × $12.00) = $430,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
72) Refer to Table 14-5. The balance of retained earnings after the declaration of a 20% common stock
dividend is: __________.
Answer: $490,000 - (50,000 × 20% × $12.00) = $370,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
250
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73) Refer to Table 14-5. The balance of retained earnings after the declaration of a 3-for-1 stock split is:
__________.
Answer: $490,000 (same)
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
74) Refer to Table 14-5. The balance of total shareholders' equity after the declaration of a 10% common
stock dividend is: __________.
Answer: same balance of $1,190,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
75) Refer to Table 14-5. The balance of total shareholders' equity after the declaration of a 3-for-1 stock
split is: __________.
Answer: same balance of $1,190,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
76) Refer to Table 14-5. The balance in the common shares account after the declaration of a 10% common
stock dividend is: __________.
Answer: same balance of $400,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
77) Refer to Table 14-5. The balance in the common shares account after the declaration of a 20% common
stock dividend is: __________.
Answer: same balance of $400,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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78) Refer to Table 14-5. The balance in the common shares account after the distribution of a 10% common
stock dividend is: __________.
Answer: $400,000 + (50,000 × 10% × $12.00) = $460,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
79) Refer to Table 14-5. The balance in the common shares account after the declaration of a 3-for-1 stock
split is: __________.
Answer: $400,000 same balance
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
80) Refer to Table 14-5. The number of common shares issued after the declaration of a 10% common
stock dividend is: __________.
Answer: 50,000 × 1.1 = 55,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
81) Refer to Table 14-5. The number of common shares issued after the declaration of a 20% common
stock dividend is: __________.
Answer: 50,000 × 1.2 = 60,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
82) Refer to Table 14-5. The number of common shares issued after the distribution of a 3-for-1 stock split
is: __________.
Answer: 50,000 × 3 = 150,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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83) From an investor's perspective, what is the main difference between a stock split and a stock
dividend.
Answer: Both a stock split and a stock dividend increase the number of common shares held by the
investor with no accompanying change in the cost of the shares owned. Where stock splits and stock
dividends differ is in the way they are treated for tax purposes. A stock split does not create taxable
income to the investor, but a stock dividend does because stock dividends are treated in the same way as
cash dividends. For this reason, stock dividends are less popular than stock splits as investors must pay
income tax on the stock dividend even though no cash has been received.
Diff: 2 Type: ES
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Comprehension
Objective: 14-1 Account for stock dividends and stock splits
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84) Delilah Corporation reports the following transactions for 2013:
Jan. 11 Sold 6,000 shares of $3.50, noncumulative, preferred shares for $75 per share.
Feb. 20 Sold 30,000 common shares for $11 per share.
Oct. 13 Declared a 10% stock dividend on the common shares. The current
market price of the common shares is $14 per share. Sampson
Corporation has 100,000 common shares outstanding on October 13.
Nov. 16 Distributed the stock dividend declared on October 13.
Dec. 16 Declared the annual dividend required on the preferred shares and a
$0.50 per share dividend on the common shares. Sampson Corporation
currently has 20,000 preferred shares outstanding.
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-1 Account for stock dividends and stock splits
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Objective 14-2
1) The repurchase of share capital from shareholders reduces total shareholders' equity and increases
assets.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
4) The difference between unissued shares and treasury shares is that treasury shares have been issued
and bought back.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
5) When repurchased shares are sold, retained earnings could be credited in the journal entry.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
6) A corporation purchases 200 of its common shares for $12 per share. Subsequently, all 200 shares are
resold for $13 per share. The amount of revenue from these transactions is $200.
Answer: FALSE
Diff: 3 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
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7) A corporation purchases 200 of its common shares for $12 per share. The shares had originally been
issued at $11. The 200 shares represent the first time the corporation has engaged in a repurchased shares
transaction. The entry to repurchase the shares will involve a debit to retained earnings for $200.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
8) The Canada Business Corporations Act and most of the provincial incorporating acts permit a corporation
to acquire its own shares if such reacquisition would result in the corporation's putting itself into
financial jeopardy.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
9) Restrictions on retained earnings involve a debit to share capital from retained earnings.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
10) Under the Canada Business Corporations Act, a company may reissue the shares it previously
repurchased.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
11) When a corporation repurchases its own shares, there is no effect on income.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
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12) Retained Earnings is credited when the price paid for repurchased company shares is less than their
book value.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
13) When a corporation re-issues treasury shares at a price greater than their cost then the gain is reported
on the income statement under other income and losses.
Answer: FALSE
Diff: 3 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Comprehension
Objective: 14-2 Account for repurchased shares
14) A corporation repurchases 200 of its common shares initially issued for $6 per share for $7 per share.
The entry to record the reacquisition requires a debit to:
A) contributed surplus-shares repurchase for $200
B) common shares for $1,200
C) common shares for $1,400
D) retained earnings for $1,200
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
15) A corporation repurchases 1,000 of its common shares initially issued for $8 per share for $6 per share.
This transaction will:
A) increase total shareholders' equity by $2,000
B) decrease total common shares by $6,000
C) have no effect on total shareholders' equity
D) decrease common shares by $8,000
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
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16) A corporation repurchases 2,000 of its common shares initially issued for $10 per share for $12 per
share. This transaction will:
A) decrease total shareholders' equity by $4,000
B) decrease common shares by $24,000
C) decrease total shareholders' equity by $24,000
D) have no effect on total shareholders' equity
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
17) A corporation sells 20 repurchased common shares costing $10 per share for $11 per share. The
journal entry to record the sale requires a credit to:
A) cash for $220
B) retained earnings for $20
C) common shares for $20
D) common shares for $220
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
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Table 14-3
Following is the shareholders' equity section of the balance sheet of Monty Corporation:
Contributed capital:
Preferred shares, $2.50, cumulative, 35,000 shares
authorized, 7,000 shares issued $ 350,000
Common shares, 140,000 shares authorized,
50,000 shares issued 452,500
18) Refer to Table 14-3. The entry to record Monty's purchase of 10,000 of its common shares at $7.50 per
share includes a:
A) debit to retained earnings for $15,500
B) debit to common shares for $75,000
C) credit to common shares for $90,500
D) credit to contributed surplus-share repurchase for $15,500
Answer: D
Explanation: D) Common shares 90,500
Cash 75,000
Contributed surplus- share repurchase 15,500
Diff: 3 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
19) Refer to Table 14-3. Assume Monty purchased 15,000 of its common shares at $10.00 per share. This
transaction would:
A) increase total shareholders' equity
B) have no effect on total shareholders' equity
C) decrease total shareholders' equity
D) increase assets
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
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20) Refer to Table 14-3. Assuming Monty purchases 15,000 of its common shares at $9.50 per share, total
shareholders' equity is:
A) increased $142,500
B) decreased $142,500
C) increased $6,750
D) the same as it was before the purchase of the company's own shares
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
21) Refer to Table 14-3. The entry to record the sale of 8,000 repurchased shares that cost $10 per share for
$13 per share includes a:
A) debit to retained earnings for $104,000
B) credit to common shares for $104,000
C) credit to common shares for $80,000
D) credit to gain on sale of shares for $24,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
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Table 14-6
Following is the shareholders' equity section of the balance sheet of Thomson Corporation:
Contributed capital
Preferred shares, $6, cumulative, 25,000 shares
authorized, 7,000 shares issued $ 700,000
Common shares, 1,000,000 shares authorized, 500,000
shares issued 2,500,000
Total contributed capital 3,200,000
Retained earnings 990,000
Total shareholders' equity $4,190,000
The preferred shares are currently selling for $89.50 per share and the common shares are currently
selling for $12.50 per share.
24) Refer to Table 14-6. The entry to record Monty's purchase of 10,000 of its common shares at $12.50 per
share includes a:
A) debit to retained earnings for $75,000
B) debit to common shares for $125,000
C) credit to common shares for $125,000
D) credit to contributed surplus-share repurchase for $75,000
Answer: A
Diff: 3 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
25) Refer to Table 14-6. Assuming Monty purchases 10,000 of its common shares at $12.50 per share, total
shareholders' equity is:
A) increased $125,000
B) decreased $125,000
C) decreased $75,000
D) the same as it was before the purchase of the company's own shares
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
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26) Refer to Table 14-6. The entry to record the sale of 8,000 repurchased shares that cost $12.50 per share
for $13.50 per share includes a:
A) credit to retained earnings for $8,000
B) credit to common shares for $108,000
C) credit to common shares for $40,000
D) credit to gain on sale of shares for $8,000
Answer: B
Explanation:
B) Cash 108,000
Common shares 108,000
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
27) Boss Corporation reported the following equity section on its current balance sheet:
Which of the following would be included in the entry to record the corporation's purchase of 1,000
common shares for $7.50 per share?
A) Contributed surplus - share purchase would be debited for $2,500
B) Retained earnings would be debited for $2,500
C) Common shares would be debited for $7,500
D) Retained earnings would be credited for $2,500
Answer: A
Explanation:
A) Common shares 5,000
Contributed surplus - share repurchase 2,500
Cash 7,500
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
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Match the following.
A) treasury shares
B) contributed surplus
C) retained earnings
28) Shares that are repurchased and held by the corporation after repurchase
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
29) The account credited when a company repurchases its' own shares at a price less than book value
Diff: 1 Type: MA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-2 Account for repurchased shares
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30) Prepare journal entries for the following transactions for Broadbent Corporation:
Jun. 10 Broadbent Corporation purchased 2,000 of its common shares for $25 per share.
The original issue price was $21 per share
Aug. 15 Broadbent Corporation sold 800 of the repurchased shares for $30 per share.
Oct. 30 Broadbent Corporation sold the remaining repurchased shares for $22 per share.
Answer: General Journal
Date Accounts Debit Credit
Jun. 10 Common Shares 42,000
Retained Earnings 8,000
Cash 50,000
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
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31) Arrow Corporation began 2014 with the following account balances:
Jan. 10 Reacquired 5,000 of its own shares for $30 per share.
20 Sold 3,000 of the reacquired shares for $33 per share.
30 Sold the remaining reacquired shares for $22 per share.
20 Cash 99,000
Common Shares 99,000
30 Cash 44,000
Common Shares 44,000
Diff: 3 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
32) Identify three reasons why a corporation might repurchase its own shares.
Answer: 1. The corporation may have issued all its authorized shares and needs to recover shares for
distribution under bonus plans or share purchase plans.
2. The purchase may help support the share's current market price by decreasing the supply of shares
available to the public.
3. Management may gather in the shares to avoid a take over by an outside party.
Diff: 2 Type: ES
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Comprehension
Objective: 14-2 Account for repurchased shares
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33) Narrow Corporation began 2014 with the following account balances:
Jan. 10 Reacquired 5,000 of its own shares for $20 per share.
Mar 20 Reacquired 2,000 of its own shares for $25 per share.
30 Sold 4,000 of the reacquired shares for $22 per share.
30 Cash 88,000
Common Shares 88,000
Diff: 3 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-2 Account for repurchased shares
Objective 14-3
1) The first income tax expense that appears on the income statement relates solely to income from
operations.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
2) When a corporation has discontinued operations, it has a separate earnings per share amount for the
discontinued operations.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
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3) When a corporation has a discontinued operation, the earnings per share amount includes the effect of
the discontinued operation.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
4) Losses due to lawsuits are reported on the income statement net of the tax savings.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
5) Losses due to floods, fire or other forces of nature are reported on the income statement net of the tax
savings.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
7) Losses due to employee labour strikes would be shown in the other gains/(losses) section of the income
statement.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
8) Discontinued operations must be separated into two components: operating income or loss from the
segment that is disposed of and operating gain or loss from the segment that will replace the business
being discontinued.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
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9) Earnings per share is the amount of a company's net income per share of its outstanding preferred
shares.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
11) Stock dividends require an adjustment to the beginning of year balance in the number of common
shares outstanding when calculating the weighted average number of shares outstanding for EPS.
Answer: TRUE
Diff: 3 Type: TF
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
12) When calculating earnings per share only cumulative preferred dividends need to be taken into
consideration.
Answer: FALSE
Diff: 3 Type: TF
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
13) The gain on sale of machinery account would appear on the income statement as a(n):
A) component of income from continuing operations
B) component of income from discontinued operations
C) component of gross margin
D) prior-period adjustment
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
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14) Components of income from continuing operations are shown:
A) after the tax effect
B) before the tax effect
C) both before and after the tax effect
D) grouped with prior-period adjustments
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
15) If a company shows a loss on discontinued operations of $60,000 and is subject to a 35% tax rate, the
tax effect is:
A) a tax savings of $21,000
B) additional tax liability of $21,000
C) a tax savings of $39,000
D) additional tax liability of $39,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
16) If a company shows a gain on discontinued operations of $60,000 and is subject to a 35% tax rate, the
tax effect is:
A) a tax cost of $21,000
B) a reduction of a tax liability of $21,000
C) a tax cost of $39,000
D) additional tax liability of $39,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
17) When a company sells a segment of its business, the gain or loss on the disposal is shown as:
A) an extraordinary item
B) part of discontinued operations
C) part of income from continuing operations
D) a prior-period adjustment
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
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18) When a company sells a piece of equipment used in the business, the gain or loss on the disposal is
shown as:
A) an extraordinary item
B) part of discontinued operations
C) other gains and losses
D) an adjustment to the beginning balance of retained earnings
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
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Table 14-4
Crane Corporation had a loss of $25,000 from a flood and a gain of $8,000 from the sale of a machine the
business owned. You are preparing the 2014 income statement. Crane Corporation is in a 34% tax
bracket.
20) Refer to Table 14-4. How would the gain from the sale of the machine appear on a multiple-step year
end income statement?
A) $8,000, as part of other gains and losses
B) $8,000, as a prior-period adjustment
C) $5,280, as part of other gains and losses
D) $5,280, as part of gross profit
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
21) Refer to Table 14-4. How would the flood loss appear on the year-end income statement?
A) $25,000 loss, as part of other gains and losses
B) $16,500 loss, as an extraordinary item
C) $25,000 loss, as a prior-period adjustment
D) $16,500 loss, as part of income from continuing operations
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
22) A loss from a tornado would probably be classified on an income statement as a(n):
A) adjustment to beginning retained earnings
B) other expense on the income statement
C) prior-period adjustment
D) operating expense
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
23) The correct order for the following income statement items is:
A) income from discontinued operations, income from continuing operations, net income
B) income from continuing operations, net income, income from discontinued operations
C) income from continuing operations, income from discontinued operations, net income
D) net income, income from discontinued operations, income from continuing operations
Answer: C
Diff: 1 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
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24) Net income for a corporation for the current year amounts to $200,000. The corporation currently has
outstanding 5,000 shares of $5, cumulative preferred shares and 20,000 common shares. The numerator to
be used in the earnings per share calculation is:
A) $200,000
B) $175,000
C) $225,000
D) $195,000
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
25) Net income for a corporation for the current year amounts to $100,000. The corporation currently has
outstanding 8,000 shares of $2, cumulative preferred shares and 20,000 common shares. The denominator
to be used in the earnings per share calculation is:
A) 20,000
B) 8,000
C) 100,000
D) 28,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
26) On January 1, 2013, Regal Corporation had outstanding 70,000 common shares. On April 1, 2013,
Regal Corporation issued 20,000 common shares in exchange for land. On September 1, 2013, Regal
Corporation reacquired 5,000 of its common shares. No other transactions regarding common shares
occurred in 2013. The denominator to be used in the earnings per share calculation is:
A) 77,500
B) 90,000
C) 83,333
D) 85,000
Answer: C
Explanation: C) 70,000 + (20,000 × 9/12) - (5,000 × 4/12) = 83,333
Diff: 3 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
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27) On January 1, 2014, Oxford Corporation had outstanding 70,000 common shares. On April 1, 2014,
Oxford Corporation issued 20,000 common shares in exchange for land. On June 1, 2014, Oxford
Corporation reacquired 5,000 of its common shares. On November 1, 2014, Oxford reissued 3,000 shares.
No other transactions regarding common shares occurred in 2014. The denominator to be used in the
earnings per share calculation is:
A) 85,000
B) 67,917
C) 82,583
D) 88,000
Answer: C
Explanation: C) 70,000 + (20,000 × 9/12) - (5,000 × 7/12) + (3,000 × 2/12) = 82,583
Diff: 3 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
28) Curtis Corporation reports net income for 2014 of $150,000. Curtis Corporation had outstanding for all
of 2014 10,000 shares of cumulative, $5, preferred shares. Curtis Corporation had outstanding for all of
2014 75,000 common shares. Earnings per share is:
A) $15.00
B) $10.00
C) $1.33
D) $2.00
Answer: C
Explanation: C) ($150,000 - $50,000)/75,000 shares = $1.33
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
29) Cardinal Corporation reports net income for 2013 of $100,000. Cardinal Corporation had outstanding
for all of 2013 10,000 shares of cumulative $5 preferred shares. On January 1, 2013, Cardinal had
outstanding 50,000 common shares. On October 1, 2013, Cardinal Corporation issued 20,000 common
shares for cash. Earnings per share is:
A) $1.43
B) $0.71
C) $1.82
D) $0.91
Answer: D
Explanation: D) ($100,000 - $50,000)/[50,000 + (20,000 × 3/12)] = $0.91
Diff: 3 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
273
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30) The denominator in the earnings per share calculation is the:
A) total number of preferred and common shares outstanding at the end of the period
B) common shares outstanding at the end of the period
C) weighted-average number of common shares outstanding during the period
D) weighted-average number of common and preferred shares outstanding during the period
Answer: C
Diff: 1 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
31) Morrison Manufacturing Corporation had 30,000 common shares outstanding at January 1, 2014.
During 2014, Morrison issued an additional 25,000 shares on February 1, and another 20,000 shares on
May 1. If Morrison's net income was $916,800, the company's earnings per share reported on the 2014
income statement will be:
A) $12.22
B) $13.84
C) $17.30
D) $20.00
Answer: B
Explanation: B) $916,800/[30,000 + (25,000 × 11/12) + (20,000 × 8/12)] = $13.84
Diff: 3 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
32) Net income for Malt Corporation for 2015 is $426,800. Malt issued 17,000 common shares and 2,000
shares of $2, cumulative preferred shares on January 1 of 2015. On November 1 of 2015, Malt Corporation
reacquired and cancelled 3,100 of its common shares. No other share transactions occurred in 2015. What
is earnings per share for 2015?
A) $24.14
B) $30.42
C) $24.37
D) $25.65
Answer: D
Explanation: D) ($426,800 - $4,000)/[17,000 - (3,100 × 2/12)] = $25.65
Diff: 3 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
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33) Clarke Corporation had net income of $365,000, paid its required preferred dividend of $17,500 and
had no other share transactions during the year. If the weighted-average number of common shares
outstanding during the year is 69,500, the earnings per share is:
A) $5.50
B) $5.00
C) $5.25
D) $10.00
Answer: B
Diff: 3 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
34) If there has been a stock split during the the year, which of the following statements is true?
A) When calculating the weighted average number of shares, it is not necessary to restate the number of
shares outstanding as if the stock split had occurred at the beginning of the year.
B) When calculating the weighted average number of shares, it is necessary to restate the number of
shares outstanding as if the stock split had occurred at the beginning of the year.
C) When calculating the weighted average number of shares, it is necessary to ignore the effect of the
stock split.
D) When calculating the weighted average number of shares, it is necessary to restate the number of
shares outstanding as if the stock split had occurred from the day of incorporation.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
275
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Table 14-7 Corporate Income Statement
For the year 2013, Foxmore Company reports the following items as part of its financial results:
35) Refer to Table 14-7. Howe much is the total operating income/(loss)?
A) $1,235,000
B) $1,500,000
C) $1,515,000
D) $905,000
Answer: B
Explanation: B) Calculations: $3,000,000 - $900,000 - $600,000 = $1,500,000
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
36) Refer to Table 14-7. How much is the income/(loss) from continuing operations, before tax?
A) $1,235,000
B) $1,500,000
C) $1,515,000
D) $1,220,000
Answer: A
Explanation: A) Calculations: $3,000,000 - $900,000 - $600,000 + $!5,000 - $280,000 = $1,235,000
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
276
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37) Refer to Table 14-7. How much of an income/(loss) should be reported for discontinuing operations
net of tax?
A) $ (78,750)
B) $ (105,000)
C) $ (120,000)
D) $ (90,000)
Answer: D
Explanation: D) $120,000 - (0.25 × $120,000) = $90,000 loss
Diff: 2 Type: MC
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
38) On January 1, 2013 the Foxmore Company had 80,000 shares of common stock outstanding and no
preferred stock. On July 1, 2013 the company issued 40,000 shares of common stock, then on September 1,
2013 the company announced a 2 for 1 stock split to take effect on October 1. What are the number of
shares that should be used to calculate the earnings per share for 2013?
A) 200,000
B) 120,000
C) 240,000
D) 125,000
Answer: A
Explanation: A) 2 × [80,000 + (6/12 × 40,000)] = 200,000
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
39) On January 1, 2013 the Foxmore Company had 80,000 shares of common stock outstanding and no
preferred stock. On July 1, 2013 the company issued 40,000 shares of common stock, then on September 1,
2013 the company announced a 4 for 1 stock consolidation to take effect on October 1. What are the
number of shares that should be used to calculate the earnings per share for 2013?
A) 25,000
B) 400,000
C) 120,000
D) 300,000
Answer: A
Explanation: A) 0.25 × [80,000 + (6/12 × 40,000)] = 25,000
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
277
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Match the following.
A) statement of earnings
B) interest expense
C) preferred dividends
D) segment
E) earnings per share
41) Amount of a company's net income per share of its outstanding common shares
Diff: 1 Type: MA
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-3 Prepare a detailed corporate income statement
43) A deduction from net income when calculating earnings per share
Diff: 1 Type: MA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
278
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44) The following accounts have been taken from Carlton Corporation's general ledger as of December 31,
2013. All data are shown before tax. The income tax rate is 40%.
Prepare a single-step income statement for the year ended December 31, 2013. Omit earnings per share.
Answer: Carlton Corporation
Income Statement
For the Year Ended December 31, 2013
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45) On January 1, 2014, Slater Corporation had outstanding 100,000 common shares. On March 1, 2014,
Slater Corporation issued an additional 15,000 common shares for cash. On May 31, 2014, Slater
Corporation received land with a current market value of $100,000 in exchange for issuing 4,000 common
shares. On August 1, 2014, Slater Corporation reacquired 5,000 of its own shares by paying shareholders
$25 per share. On November 1, 2014, 2,000 of the repurchased shares were resold.
Compute the weighted-average number of shares outstanding to be used in the earnings per share
calculation.
Answer:
Jan. 1 100,000 × 2/12 = 16,667
+ 15,000
Mar. 1 115,000 × 3/12 = 28,750
+ 4,000
May 31 119,000 × 2/12 = 19,833
- 5,000
Aug. 1 114,000 × 3/12 = 28,500
+ 2,000
Nov. 1 116,000 × 2/12 = 19,333
113,083
Diff: 3 Type: SA
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
46) Vincent Corporation began operations on January 1, 2013. On January 1, 2013, Vincent Corporation
issued 2,000 shares of $5, cumulative preferred shares. In addition, on January 1, 2013, Vincent
Corporation issued 5,000 common shares at $15 per share. On June 30, 2013, an additional 2,500 common
shares were issued to investors in exchange for land with a current market value of $40,000. On October
1, 2013, Vincent Corporation reacquired 1,000 of its own common shares at $17.50 per share. No
dividends have been declared during 2013 by Vincent Corporation. The net income for the first year of
operations is $550,000.
= $90
Diff: 3 Type: SA
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
280
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47) London Corporation had 50,000 common shares outstanding and 10,000 shares of $5, cumulative,
preferred shares outstanding on January 1, 2015. On March 31, 2015, London Corporation sold 10,000
common shares for $25 per share. On June 30, 2015, London Corporation sold 5,000 common shares for
$26 per share. London Corporation reacquired 2,000 of its common shares for $27 per share on October 1,
2015. London Corporation reported net income for the year ended December 31, 2015, of $200,000.
= $2.52
Diff: 3 Type: SA
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
281
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48) Addison Corporation reported the following income statement items for the year ended December 31,
2014:
Discontinued operations:
Operating income 15,000
Loss on disposal (65,000)
Prior-period adjustment 40,000
All items above are shown before tax effects. Addison Corporation is subject to a 35% tax rate. Assume
income from continuing operations is $442,000. Show the correct presentation of these items on the
income statement including earnings per share calculations. Assume 20,000 common shares and 5,000, $2
preferred shares were outstanding for the entire year.
Answer: Addison Corporation
Partial Income Statement
For the Year Ended December 31, 2014
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49) Based on the given data, compute the following items for Neff Corporation for 2014:
a) __________________________
b) __________________________
c) __________________________
Answer:
a) ($30,000 + $65,000) = $95,000
Diff: 2 Type: SA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
283
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50) The following information was taken from the accounting records of Winnifred Corp. at December 31,
2014. The income tax rate is 40%.
Prepare a single step income statement and a statement of retained earnings for the year ended December
31, 2014.
Answer: Winnifred Corp.
Income Statement
For the Year Ended December 31, 2014
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Winnifred Corp.
Statement of Retained Earnings
For the Year Ended December 31, 2014
Diff: 3 Type: SA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
51) The following information was taken from the accounting records of Jamboree Ltd. at December 31,
2014. The company uses a periodic inventory system. The income tax rate is 40%.
There were no share transactions in 2014. The ending inventory count showed a December 31, 2014
balance of $62,000.
Prepare a multi-step income statement and a statement of retained earnings for the year ended December
31, 2014. Present cost of goods sold as a line item with a supporting schedule for the calculation.
285
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Answer: Jamboree Ltd.
Income Statement
For the Year Ended December 31, 2014
Jamboree Ltd.
Statement of Retained Earnings
For the Year Ended December 31, 2014
Diff: 3 Type: SA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
286
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52) The following accounts have been taken from Buxton Corporation's general ledger as of December 31,
2014. All data are shown before tax. The income tax rate is 40%.
Prepare a single-step income statement for the year ended December 31, 2014. Omit earnings per share.
Answer: Buxton Corporation
Income Statement
For the Year Ended December 31, 2014
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53) Lindall Corporation reported the following income statement items for the year ended December 31,
2014:
Discontinued operations:
Operating income 6,000
Loss on disposal (50,000)
Prior-period correction 40,000
All items above are shown before tax effects. Lindall Corporation is subject to a 25% tax rate. Assume
income from continuing operations is $396,000. Show the correct presentation of these items on the
income statement including earnings per share calculations. Assume 50,000 common shares and 5,000, $4.
preferred shares were outstanding for the entire year.
Answer: Lindall Corporation
Partial Income Statement
For the Year Ended December 31, 2014
288
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54) On January 1, 2014, Bedrock Corporation had outstanding 90,000 common shares. On March 1, 2014,
Bedrock Corporation issued an additional 5,000 common shares for cash. On May 31, 2014, Bedrock
Corporation received equipment with a current market value of $60,000 in exchange for issuing 3,000
common shares. On August 1, 2014, Bedrock Corporation reacquired 5,000 of its own shares by paying
shareholders $25 per share. On November 1, 2014, 1,000 of the repurchased shares were resold.
Compute the weighted-average number of shares outstanding to be used in the earnings per share
calculation.
Answer:
Jan. 1 90,000 × 2/12 = 15,000
+ 5,000
Mar. 1 95,000 × 3/12 = 23,750
+ 3,000
May 31 98,000 × 2/12 = 16,333
- 5,000
Aug. 1 93,000 × 3/12 = 23,250
+ 1,000
Nov. 1 94,000 × 2/12 = 15,667
94,000
Diff: 3 Type: SA
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Application
Objective: 14-3 Prepare a detailed corporate income statement
Objective 14-4
1) Adjustments for errors in prior periods flow through the income statement .
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
2) Adjustments for errors in prior periods affect retained earnings and therefore appear on the statement
of retained earnings.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
3) An appropriation of retained earnings involves setting cash aside for a specific purpose.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
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4) An appropriation of retained earnings requires a journal entry.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
5) Under Accounting Standards for Private Enterprises (ASPE) a change in accounting policy should be
applied retrospectively by adjusting period financial statements.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-01 Identify and apply accounting concepts and principles found in the Conceptual Framework
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
6) Changing an estimate, such as the amount of uncollectible accounts receivable, should be applied
prospectively.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-01 Identify and apply accounting concepts and principles found in the Conceptual Framework
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
290
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9) Restrictions on retained earnings:
A) may take the form of a voluntary appropriation
B) must be disclosed by a journal entry
C) are reported in the liability section of the balance sheet
D) are only used for tax purposes
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
10) An error on the 2012 income statement is discovered in 2014. The adjustment to correct the error will
appear on the:
A) 2014 income statement
B) 2014 statement of retained earnings
C) 2012 income statement
D) 2012 statement of retained earnings
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
12) The payment of a cash dividend to shareholders appears on which financial statement?
A) income statement
B) balance sheet
C) statement of retained earnings
D) either the balance sheet or the income statement
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
291
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13) The declaration of a common stock dividend will appear on which of the following financial
statements?
A) income statement
B) balance sheet
C) statement of retained earnings
D) either the balance sheet or the income statement
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
14) Which of the following BEST describes the appropriation of retained earnings?
A) Earmarking certain amounts for specific business purposes, such as for growth or expansion projects
B) Restricting cash dividends or treasury stock purchases so that the company maintains adequate levels
of equity
C) Designating certain amounts of retained earnings for cash dividends to be paid out to shareholders
D) Limiting company transactions in order to boost earnings and profits
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
15) Which of the following would be a reason for a company to appropriate a portion of retained
earnings?
A) To ensure that the business does not take on too much debt
B) To increase the amount of earnings available for dividends
C) To help the company control levels of operating expenses
D) To limit the amount of retained earnings available for dividends, in order to retain sufficient funds for
growth
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements
Skill: Knowledge
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
292
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Match the following.
A) prior-period adjustment
B) appropriation of retained earnings
C) deficit
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20) The shareholders' equity of Orion Corporation as of December 31, 2013, follows:
Mar. 5 Declared the required annual cash dividend on preferred shares and a $0.40 per share cash
dividend on the common shares.
26 Paid the cash dividend that was declared on March 5.
May 2 Purchased 3,000 of its own common shares for $17.50 per share.
Jul. 5 Distributed a 2-for-1 stock split on the common shares.
Dec. 31 Closed out the income summary account with a credit balance of $287,000.
Prepare the shareholders' equity section of the balance sheet of Orion Corporation as of December 31,
2014. Do not prepare journal entries for the above transactions.
Answer: Orion Corporation
Partial Balance Sheet
December 31, 2014
Shareholders' Equity
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21) Qualified Research Inc. ended 2013 with Retained Earnings of $55,000. During 2014, the company
earned net income of $115,000 and declared dividends of $25,000. The company ended 2013 with $25,000
in common shares and $20,000 in $1 preferred shares. Additional common shares were sold in 2014 for
$15,000. Complete Qualified Research Inc's statement of shareholders' equity for the year ended
December 31, 2014.
Balance
December 31,
2014
Diff: 2 Type: SA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
295
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22) JenStar Research Inc. ended 2013 with Retained Earnings of $30,000. During 2014, the company
earned net income of $135,000 and declared dividends of $15,000. The company ended 2013 with $80,000
in common shares and $10,000 in $2 preferred shares. Additional common shares were sold in 2014 for
$20,000. Complete JenStar Research Inc's statement of shareholders' equity for the year ended December
31, 2014.
Balance
December 31,
2014
Diff: 2 Type: SA
Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements
Skill: Application
Objective: 14-4 Prepare a statement of retained earnings and a statement of shareholders' equity
296
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23) The shareholders' equity of Saturn Corporation as of December 31, 2013, follows:
Feb. 6 Declared the required annual cash dividend on preferred shares and a $0.20 per share cash
dividend on the common shares.
26 Paid the cash dividend that was declared on February 6.
Jun. 4 Purchased 4,000 of its own common shares for $15.25 per share.
Jul. 5 Distributed a 2-for-1 stock split on the common shares.
Dec. 31 Closed out the income summary account with a debit balance of 48,000.
Prepare the shareholders' equity section of the balance sheet of Saturn Corporation as of December 31,
2014. Do not prepare journal entries for the above transactions.
Answer: Saturn Corporation
Partial Balance Sheet
December 31, 2014
Shareholders' Equity
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Objective 14-5
1) Other comprehensive income must be reported under international financial reporting standards
(IFRS).
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 14-5 Identify the impact on the income statement and the statement of shareholders' equity of IFRS
2) Which of the following is a key difference between income statements prepared under international
financial reporting standards (IFRS) and accounting standards for private enterprises(ASPE)?
A) IFRS requires EPS information to be disclosed on the income statement whereas ASPE does not.
B) IFRS does not require EPS information to be disclosed on the income statement whereas ASPE does.
C) IFRS recommends disclosure of EPS information on the income statement whereas ASPE requires it.
D) IFRS requires more detailed EPS information on the income statement than does ASPE.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 14-5 Identify the impact on the income statement and the statement of shareholders' equity of IFRS
3) Which of the following is a correct statement with reference to the International Financial Reporting
Standards (IFRS)?
A) Accounting policy changes are not limited to those providing more relevant and reliable information.
B) Earnings per share information may be presented in the notes to the financial statements rather than
on the income statement.
C) The statement of retained earnings is required.
D) To correct an error, financial information does not have to be restated retroactively if it is impractical
to do so.
Answer: D
Diff: 3 Type: MC
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 14-5 Identify the impact on the income statement and the statement of shareholders' equity of IFRS
4) Which of the following is an incorrect statement with reference to the International Financial
Reporting Standards (IFRS)?
A) Accounting policy changes are limited to those providing more relevant and reliable information.
B) Earnings per share information must be presented on the income statement.
C) The statement of retained earnings is not required.
D) To correct an error, financial information must be restated retroactively.
Answer: D
Diff: 3 Type: MC
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 14-5 Identify the impact on the income statement and the statement of shareholders' equity of IFRS
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Match the following.
Answers: 5) C 6) A
7) What is the impact of IFRS on the income statement and statement of shareholders' equity?
Answer: Companies that report under IFRS must present EPS information on their income statement and
must report comprehensive income in a statement of comprehensive income.
Under IFRS, the statement of shareholders' equity is called the statement of changes in equity. No
statement of retained earnings is prepared.
Diff: 2 Type: ES
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Comprehension
Objective: 14-5 Identify the impact on the income statement and the statement of shareholders' equity of IFRS
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Objective 14-6
Jan. 10 Sold 5,000 shares of $4.50, noncumulative, preferred shares for $85 per share.
Feb. 19 Sold 3,000 common shares for $12 per share.
Oct. 12 Declared a 15% stock dividend on the common shares. The current
market price of the common shares is $15 per share. Sampson
Corporation has 100,000 common shares outstanding on October 12.
Nov. 15 Distributed the stock dividend declared on October 12.
Dec. 15 Declared the annual dividend required on the preferred shares and a
$0.50 per share dividend on the common shares. Sampson Corporation
currently has 20,000 preferred shares outstanding.
Diff: 2 Type: SA
Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock
dividends, and stock splits
Skill: Application
Objective: 14-6 Multiple objectives same chapter
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