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Book Cover
Financial and Managerial Accounting: The Basis for Business Decisions, 12/e
Jan R. Williams, University of Tennessee
Susan F. Haka, Michigan State University
Mark S. Bettner, Bucknell University
Robert F. Meigs

Income and Changes in Retained Earnings

Online Tutorial Quiz

Please answer all questions





1

Discontinued operations are the net operating results of a segment of a company that has been or is being sold.
A)True
B)False
2

A segment of a business represents a separate and distinct line of business activity or that provides a service to a distinct category of customers.
A)True
B)False
3

Discontinued operations need not be a segment of the business in order to qualify for separate presentation in the income statement.
A)True
B)False
4

Transactions and events that are unusual in nature and occur infrequently are called extraordinary items.
A)True
B)False
5

A change in the estimated life of a depreciable asset is treated as a change in accounting principle.
A)True
B)False
6

Discontinued operations are unusual in nature and are considered to be extraordinary items.
A)True
B)False
7

A material (significant) loss from theft would not be considered an extraordinary item.
A)True
B)False
8

Costs related to reorganizing and downsizing the company to make the company more efficient are called restructuring charges.
A)True
B)False
9

In reporting most changes in accounting principle, the cumulative effect of the change in the income of prior years is shown in the income statement of the year effected.
A)True
B)False
10

Computing earnings per share by dividing the company's net income by the number of common shares outstanding is acceptable when the corporation has common stock only, and the number of shares has not changed during the year.
A)True
B)False
11

If the company had 10,000 common shares outstanding for the first three months of the year, 12,000 common shares outstanding for the next three months of the year, and 15,000 shares outstanding for the last six months of the year, the weighted-average number of common shares outstanding is 13,000.
A)True
B)False
12

The result of dividing the market price of a share of common stock by the annual earnings per share of common stock is called the price-earnings ratio.
A)True
B)False
13

A company with net income of $450,000, 200,000 weighted-average shares of common shares outstanding, and 10,000 shares of $5 cumulative preferred stock outstanding, would have earnings per share of $2.00 per share of common stock.
A)True
B)False
14

Diluted earnings per share are computed under the assumption that all convertible securities had been converted into additional common shares at the beginning of the current period.
A)True
B)False
15

Net income applicable to the common stock divided by weighted-average number of common shares outstanding during the year is called the basic earnings per share.
A)True
B)False
16

A person who buys common stock before the date of record is always entitled to receive the dividend that has already been declared.
A)True
B)False
17

The date on which a person must be listed as a shareholder, to be eligible to receive a dividend is called the date of record.
A)True
B)False
18

A journal entry is required for three of the four dates (declaration, ex-dividend, record, and payment) associated with a cash dividend.
A)True
B)False
19

A cash dividend that exceeds the balance in the Retained Earnings account is called a negative dividend.
A)True
B)False
20

A stock dividend is a distribution of additional shares to common stockholders in proportion to their holdings.
A)True
B)False
21

A distribution of cash by a corporation to its stockholders is called a cash dividend.
A)True
B)False
22

When recording a 'small' stock dividend, the debit to the Retained Earnings account must be equal to the current market value of the stock.
A)True
B)False
23

A 'small' stock dividend increases total stockholders' equity by the market value of the shares.
A)True
B)False
24

A correction of a material error in the earnings reported in the financial statements of a prior year is called a prior period adjustment.
A)True
B)False
25

Restrictions on retained earnings are commonly journalized to prevent retained earnings from falling below a designated amount.
A)True
B)False
26

Net income plus or minus certain changes in financial position that are recorded as direct adjustments to stockholders' equity rather than as elements in the determination of net income is called undiluted income.
A)True
B)False
27

Cash dividends and stock dividends are shown on the statement of cash flows.
A)True
B)False
28

An expanded version of a statement of retained earnings summarizing the changes during the year in all stockholders' equity accounts is called the statement of stockholders' equity.
A)True
B)False
29

Which of the following categories of events require special treatment when reporting the results of operations?
A)The results of discontinued operations
B)The effects of changes in accounting principles
C)The impact of extraordinary items
D)The impact of large stock dividends
E)A, B, and C
30

The special items reported in the income statement are, in no particular order, (1) Discontinued operations, (2) Cumulative effect of change in accounting principles, and (3) Extraordinary items. Which is the proper order for presenting these special items in the financial statements?
A)1, 3, 2
B)1, 2, 3
C)3, 2, 1
D)3, 1, 2
E)2, 3, 1
31

A company had a $230,000 operating loss on discontinued operations of one of its production segments. The income tax benefit from the loss was $103,000. The gain on the sale of the production segment was $150,000. What amount would be reported as the net result of discontinued operations?
A)$127,000
B)$150,000
C)$23,000
D)$183,000
E)None of the above
32

Which of the following events would be considered as extraordinary events for a company located in Montana that produces and sells camping tents?
A)An earthquake
B)Material (significant) loss from theft
C)Losses from tent inventory declared unsafe by an agency of the federal government
D)A, B, and C
E)A, and C only
33

How are restructuring costs reported?
A)As a deduction in arriving at operating income
B)As an extraordinary item
C)As an unusual and extraordinary item
D)As a deduction in arriving at taxable income
E)As a deduction to retained earnings
34

The company had 48,000 shares outstanding for the first two months of the year, 66,000 shares outstanding for the next three months of the year, and 72,000 shares outstanding for the last seven months of the year. There were 5,000 of $8 noncumulative preferred shares outstanding during the year. Net income was $339,150. What were the earnings per share of common stock?
A)$5.23
B)$4.615
C)$5.666
D)$5.10
E)None of the above
35

The company had 48,000 shares outstanding for the first two months of the year, 60,000 shares outstanding for the next three months of the year, and 72,000 shares outstanding for the last seven months of the year. There were 5,000 of $8 cumulative preferred shares outstanding during the year. Net income was $340,000. What were the earnings per share of common stock?
A)$5.23
B)$4.615
C)$5.666
D)$5.00
E)None of the above.
36

Which of the following is true about diluted earnings per share?
A)Often referred to as pro forma calculations
B)Is computed as if convertible preferred stock has been converted
C)Is used to compute the price-earnings ratio
D)Represents a hypothetical case
E)A, B, and D
37

Which of the following are requirements for the payment of a cash dividend?
A)Adequate retained earnings to absorb the dividend without creating a deficit in retained earnings.
B)Adequate cash on hand at the date of payment
C)Approval by the stockholders
D)All of the above
E)A and B
38

A cash dividend was paid on March 15. The date of record was February 25, which was a Monday. What was the ex-dividend date?
A)February 22
B)February 21
C)February 20
D)February 28
E)None of the above
39

Which of the following is true about a liquidating dividend?
A)It occurs when a dividend exceeds the balance in the Retained Earnings account.
B)It occurs when dividends exceed net income.
C)It occurs when the corporation goes out of business.
D)A and C
E)A, B, and C
40

On July 1, Auburn Corporation has outstanding 150,000 shares of $10 par common stock with a market value of $24 per share. On this date, the company declares a 12% stock dividend, distributable on August 15 to stockholders of record on July 20. The entry on July 1 would include which of the following?
A)A debit to Retained Earnings for $180,000.
B)A credit to Stock Dividend to Be Distributed, $180,000.
C)A credit to Additional Paid-in Capital Stock Dividends, $252,000.
D)B and C
E)A, and C
41

On July 1, Auburn Corporation has outstanding 150,000 shares of $10 par common stock with a market value of $24 per share. On this date, the company declares a 30% stock dividend, distributable on August 15 to stockholders of record on July 20. The entry on July 1 would include which of the following?
A)A debit to Retained Earnings for $450,000.
B)A credit to Stock Dividend to Be Distributed, $450,000.
C)A credit to Additional Paid-in Capital Stock Dividends, $630,000.
D)B and C
E)None of the above
42

A company has 100,000 shares of $10 par value common shares outstanding. The company declares a 4-1 stock split. As a result, which of the following will occur?
A)Par value will become $2.50 and shares outstanding will be 400,000.
B)Par value will remain unchanged and shares outstanding will be 400,000.
C)Par value will become $2.50 and shares outstanding will not change.
D)Par value will become $40.00 and shares outstanding will be 25,000.
E)None of the above will occur.

Beginning retained earnings $450,000
Net loss for the period 50,000
Cash dividends declared on common stock 60,000
Cash dividends declared on preferred stock 80,000
Stock dividend, 10% of common stock 120,000
Prior period adjustment, net of taxes (30,000)



43

What is the ending balance of retained earnings on a Statement of Retained Earnings prepared from the information above?
A)$170,000
B)$110,000
C)$140,000
D)$230,000
E)$500,000



44

Which of the following changes in financial position should be recorded but should not enter into the determination of net income, as identified by the FASB?
A)Events that are recognized but not realized.
B)Events that are recognized and realized.
C)Events that are realized but not recognized.
D)Events that are not realized or recognized.
E)None of the above