Question

SHORT ANSWER. (10 Points) Write the word or phrase that best completes each statement or answers the question 11) Earnings per share-basic and diluted Greenwich Corporation had net income of $1,712,500 in 2018. The company had 300,000 shares of $4 par value common stock and 25,000 shares of 8%, s100 par, preferred stock outstanding throughout the year. Each share of preferred stock is both cumulative and convertible. Each share of preferred stock is convertible into four shares of common stock. Compute the following 11) for 2018: Basic earnings per share The number of shares to be used in computing diluted earrings per share per share TRUE/FALSE. (3 points each) Write "T if the statement is true and 'F' if the statement is false. 12) "Discontinued operations" is an example of an unusual and/or infrequent item. 12) 13) Comprehensive income may be presented in a statement with net income, in a separate statement, or as part of the notes to the financial statements. 13) 14) Diluted earnings per share are shown to alert investors that earnings per share could increase by the effects of conversions of securities into common stock 14) 15) The expropriation (seizure of) of a multinational company's assets by a government is an example of a discontinued operation item. 15) 16) Stock splits are always in a 2-for-1 ratio. 16) 17) In an attempt to appeal to investors, a company may be tempted to overstate net income 17 8) A prior period adjustment to retained earnings is made when a discovery of a material error was made to prior years' income. 18) 19) A stock dividend provides a stockholder with more shares of stock, but his or her percentage of ownership in the company is no larger than before. 19) 20) The FASB has not compiled a comprehensive list of what is considered to be unusual and/or infrequent items; thus the determination is a matter of judgment. 20) 21) Large stock dividends tend to keep stock prices down 21)

Answer 1

11) a) Basic Earning per share = Earning available for common stockholders / Weighted average Number of Shares as common stock

Calculation of Earning available for Common stockholders

Net Income $1,712,500

Less: Dividend for preferred stock ($200,000)

(25,000 * $100 * 8%)

Income for common stockholders $1,512,500

Number of common stock shares 300000

Basis Earning per share = $5.04

b) Number of shares to be used in diluted earnings per share = Number of shares of preferred stock * conversion ratio

= 25000 * 4

= 1,00,000 shares

12 ) False as discontinued items are itself a broad term comprising a wider meaning. Therefore it cannot be said that discontinued operation is an example of unusual and/or infrequent items.

13) True as standard on Presentation of Financial Statements sets out the overall requirement for financial statements including how they should be structured. The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.

14) False as diluted earning per share is the profit per share of common stock outstanding assuming that all convertible securities were converted to common stock.

15) False as the mere seizure of assets of a multinational company by the Government does not refer to the discontinued operation items.

16) False because there can be any ratio used for stock split like 2 for 1, 3 for 1, 3 for 2 and many more.

17) True as it is one of the steps might be taken by management to improve the appearance of the company's net income to investors.

18) True as if a material error was discovered in prior period income than material adjustment could be made on the statement of retained earnings to adjust the equity account to the proper balance.

19) True as stock dividend have no effect on the total amount of stockholders equity. They merely decrease retained earnings and increase paid-in capital by an equal amount. After the distribution of stock dividends, each share of similar stock has a lower book value per share because more shares are outstanding with no increase in total stockholder's equity.

20) True as determination of items to be considered as unusual and/or infrequent items is a matter of judgment as there is no hard and fast rule for determination of the same prescribed by FASB.

21) True, large stock dividends tend to keep stock prices down as stock dividends tend to increase number of shares with same amount of income which results in decreasing the price of the stock in the market.