1) When a company sells a segment of its business, the gain or loss on the disposal of the segment is shown as:
A) other gains or losses on the income statement
B) part of the discontinued operations section on the income statement
C) an extraordinary item appearing on the income statement
D) an adjustment to the beginning balance of retained earnings
2) The value of a company's common share can be quantitatively estimated by:
A) dividing the company's investment capitalization rate by retained earnings
B) dividing the company's current annual income in the future by the investment capitalization rate
C) dividing the company's retained earnings by the estimated annual income in the future
D) dividing the company's estimated annual income in the future by the investment capitalization rate
3) An analyst with a securities firm calculates the estimated value of a company's stock. Upon further analysis, it is found that the estimated value of the stock exceeds the current market value of the company. Given this, the analyst should make an investment decision to:
A) hold the company's stock
B) sell the company's stock
C) buy the company's stock
D) The analyst does not have sufficient information to make a prudent investment decision in this situation.
4) A company incurs a loss due to restructuring. This is the first time the company has gone through restructuring. The loss from this event would be shown as:
A) an extraordinary item
B) other gains and losses
C) prior-period adjustments
D) a normal business occurrence requiring an adjustment to the beginning balance in retrained earnings
5) A company that switches from straight-line amortization to double-declining-balance amortization during an accounting period must report this change on the financial statements as:
A) an extraordinary item
B) income from continuing operations
C) a prior-period adjustment
D) a cumulative effect of a change in accounting principle
6) Earnings per share (EPS) is calculated by:
A) dividing the average number of common shares outstanding throughout the year by net income
B) dividing net income by the average number of common shares outstanding throughout the year
C) dividing net income by the number of common shares outstanding at the end of the year
D) dividing the number of common shares outstanding at the end of the year by net income
7) The dollar amount of a company's net income for each common share outstanding is referred to as:
A) the price-to-earnings ratio
B) income as a percentage of equity
C) earnings per share
D) cumulative retained earnings ratio
8) Preferred share dividends must be accounted for in the earnings-per-share calculation. Preferred dividends are:
A) added to net income in the numerator of the EPS calculation
B) subtracted from common shares in the denominator of the EPS calculation
C) added to common shares in the denominator of the EPS calculation
D) subtracted from net income in the numerator of the EPS calculation
9) EPS (Earnings Per Share) is a key measure of a business's success. Which statement below is true regarding EPS and a company's financial statements?
A) The EPS calculation never takes into consideration preferred shares or preferred shares dividends.
B) EPS is based on the number of common shares outstanding at the end of an accounting period.
C) An EPS figure should be calculated and presented for each significant element of net income on the income statement.
D) EPS based on the actual outstanding number of common shares of stock is called
diluted
EPS.
10) In what situation would a company have to calculate and report
diluted
EPS on the financial statements?
A) a company that has both convertible preferred and common shares issued and outstanding
B) a company whose common shares' fair market value has dropped 20% from the prior financial statement reporting period
C) a company that has both nonconvertible preferred and common shares issued and outstanding
D) a company that has only common shares issued and outstanding