51. Which of the following would be classified as an extraordinary item?
A. A large gift given to the company.
B. A loss from obsolete inventory.
C. A loss from a natural disaster that affects the company at infrequent intervals.
D. A loss from an enacted law that made inventory unsalable.
52. An example of an extraordinary gain or loss is:
A. A large loss arising from inability to collect an account receivable from a bankrupt customer.
B. A large gain from disposal of a segment of the business.
C. A gain or loss from sale of an expensive machine no longer needed in the business.
D. None of these answers.
53. In computing earnings per share, the number of shares used is:
A. The year-end number of shares outstanding.
B. The beginning of the year number of shares outstanding.
C. The average of the beginning and the year-end number of shares outstanding.
D. The weighted average of shares outstanding for the year.
54. The amount of earnings per share is usually computed:
A. For both preferred and common stock.
B. For common stock by deducting the dividends on preferred stock from net income and dividing the remaining amount by the weighted average number of common shares outstanding.
C. By dividing net income by the combined number of preferred and common shares.
D. On the basis of the number of shares outstanding at year-end, regardless of changes in the number of shares during the year.
55. Which of the following statistics is generally computed for both common and preferred stock?
A. Earnings per share.
B. Price-earnings ratio (p/e ratio).
C. Annual dividend per share.
D. Retained earnings per share.
56. Earnings per share figures are shown in the income statement:
A. For income before extraordinary items and for income from continuing operations, as well as for net income.
B. For common stock as well as for preferred stock.
C. For all publicly owned, as well as for all privately held, corporations.
D. As an optional disclosure for all corporations, and may be omitted completely or disclosed in a footnote at the option of the issuing corporation.
57. The numerator in calculating earnings per share is reduced for:
A. Preferred dividends.
B. Common dividends.
C. Common stock dividends.
D. All three above.
58. All things being equal, if investors expect earnings to increase substantially from current levels, the price/earnings ratio will:
A. Be quite low.
B. Be quite high.
C. Not change.
D. Not be affected by income expectations.
59. The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings, i.e., at a p/e ratio of 20. What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?
A. An increase in market price of approximately 10 cents per share.
B. An increase in market price of approximately $2 per share.
C. A reduction in the p/e ratio due to the larger EPS.
D. Nothing, since market price reflects expectations of future earnings.
60. Which of the following has no effect on the computation of earnings per share for the current period?
A. The amount of cash dividends declared or paid to preferred stockholders.
B. The amount of cash dividends declared or paid to common stockholders.
C. Net income.
D. The number of shares of common stock authorized.