Question

1.

Which account has a normal debit balance?

Select one:

a. Preferred Stock

b. Purchases

c. Accumulated Depreciation

d. Unearned Revenue

e. Dividends Payable

2.

Which item is initially capitalized and then expensed based on its use?

Select one:

a. Period Costs

b. Wages Payable

c. Accounts Receivable

d. Fixed Asset

3.

Blue Heron Company, with an applicable income tax rate of 30%, computed after-tax Net Income of $400,000. However, Blue Heron failed to recognize pre-tax Wage Expense of $2,000 and Interest Revenue of $5,000 in its computation. The company's final Net Income is:

Select one:

a. $402,100

b. $402,900

c. $397,900

d. $397,100

e. $403,000

4.

Given the following:



The amount to be disclosed as EPS will be:

Weighted Average of Common Shares Outstanding 12/31 Common Shares Outstanding Net Income before taxes Cash Dividends to Common Shareholders Cash Dividends to Preferred Shareholders Tax Rate 100 200 $500 $100 $60 20%

Select one:

a. $3.40

b. $1.76

c. $2.20

d. $3.60

e. $1.70

Answer 1

Question	Answer
1	b. Purchases
2	d. Fixed Asset
3	a. $402,100
4	a. $3.40

Explanations:

1. Purchases is an expense and expenses have debit balances.

2. A fixed asset is initially recognized as an asset and then depreciated over the life of the asset.

3. Profit before tax = 400,000 / 0.70 = $ 571,428.57

Correct profit = $ 571,428.57 - 2,000 + 5,000 = $ 574428.57

Profit after tax = $ 574428.57 * 0.70 = $ 402,100

4. EPS = [($ 500 * 0.8) -60] / 100 = $ 3.4

In case of any doubt, please comment.