1D - Public Company Reporting Topics (U.S. SEC Reporting Requirements, Earnings per Share, and Segment Reporting)

Question 1

Which of the following forms must be filed quarterly with the SEC?

Form 10-K

Form 990

Form 10-Q

Form 1065

Answer 1

Form 10-Q The most common forms are the 10-K and the 10-Q. These forms must be filed electronically on EDGAR unless this filing causes hardship on the filing company. Form 10-K is the required annual report.

It provides a comprehensive report of a company’s business and financial condition, including audited financial statements. Form 10-Q is the quarterly report required to be filed with the SEC by all publicly traded companies.

The Form 10-Q contains financial statements, a discussion from the management, and a list of “material events” that have occurred with the company.

Question 2

SEC Form 10-__ is the quarterly report

SEC Form 10-__ is the annual report

Answer 2

Q

K

Question 3

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive?

Cumulative 8%, $50 par preferred stock

10% convertible bonds, issued at par, with each $1,000 bond convertible into 20 shares of common stock

7% convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock

6%, $100 par cumulative convertible preferred stock, issued at par, with each preferred share convertible into four shares of common stock

Answer 3

7% convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock

Dilutive securities reduce earnings per share. To determine dilution, a conversion basis must be stated. Each 7% bond yields $70 ($1,000 × 7%) of interest; the net-of-tax interest is $49 ($70 × (1 − .30)). The conversion increases the number of shares by 40. The earning per share on the converted bonds is only $1.225 (49/40) thus diluting the basic earnings per share of $1.29.

Question 4

Dilution (dilutive): A ___in EPS

Antidilution : An ___in earnings-per-share

___-___ ___ ___: The number of shares determined by relating (a) the portion of time within a reporting period that common shares have been outstanding to (b) the total time in that period.

___ EPS: The amount of earnings for the period available to each share of common stock outstanding

Answer 4

Reduction

Increase

Weighted-average common shares (WACS):

Basic EPS

Question 5

Norsk Corporation has convertible bonds as part of its capital structure. The bonds have a face value of $100,000 and were issued at $105,417. The stated interest on the bonds is 8%. The amount of premium amortization for the first year was $1,700. If Norsk has an income tax rate of 40%, what is the amount that will be added to the numerator in the computation of diluted earnings per share?

$6,300

$8,000

$4,800

$3,780

Answer 5

$3,780

The amount to be added back is the after-tax amount of the interest expense on the bonds. The annual interest expense on the bonds is equal to the cash payment less the premium amortization, since the bonds were issued at a premium. The annual cash payment is $8,000 ($100,000 × .08).

The net annual interest expense is $8,000 – $1,700 = $6,300. The net annual interest expense is multiplied by the tax rate and then that amount is subtracted from the annual interest expense to arrive at after-tax interest expense ($6,300 × .40 = $2,520; $6,300 – $2,520 = $3,780).

The amount can be more efficiently computed in the following manner: $6,300 × (1 – .40) = $3,780.

Question 6

A company had 400,000 shares of common stock issued and outstanding on January 1, year 1, and had the following equity transactions for year 1:

Transactions Date
Issued 200,000 new shares for cash April 1
Issued new shares as a result of a 3-for-1 stock split July 1
Purchased 300,000 shares treasury stock for cash October 1

What should the company use as the denominator for the calculation of basic earnings per share for the year ended December 31, year 1?

1,325,000

1,075,000

1,575,000

1,650,000

Answer 6

1,575,000

Question 7

Options to purchase common stock are excluded from the computation of diluted EPS if:

their exercise price is greater than the average market price.

they are employee compensation and the employee may not be able to sell the stock until some future date.

their exercise price is less than the average market price.

they are issued as part of employee compensation arrangements.

Answer 7

their exercise price is greater than the average market price.

Options have a diluting effect when the average market price of the common stock exceeds the exercise price of the options. (Note that options would not be exercised by holders if the option price exceeds the market price.)

FASB ASC 260-10-45-28A states that stock-based awards are included in diluted EPS even if the employee may not be able to sell them until some future date.

Question 8

In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment?

Both sales to unaffiliated customers and intersegment sales

Sales to unaffiliated customers

Intersegment sales

Neither sales to unaffiliated customers nor intersegment sales

Answer 8

Both sales to unaffiliated customers and intersegment sales

After an enterprise has identified its operating segments (including those that represent an aggregation of two or more separate segments), it must report separately information about each operating segment that meets any one or more of the following tests.

Those segments that meet at least one of the tests represent reportable segments for which specified information must be reported.

• Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments (for purposes of this test, revenue includes both sales to external customers and intersegmental sales or transfers)
• Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:
  
  • the combined reported profit of all operating segments that did not report a loss or
  • the combined reported loss of all operating segments that did report a loss
• Asset test: If its assets are 10% or more of the combined assets of all operating segments

Question 9

Information about two or more operating segments may be aggregated into a single operating segment only if the segments have similar economic characteristics and are similar in each of the following areas:

a. The nature of the ___ and services
b. The nature of the ___processes
c. The type or class of ___for their products and services
d. The ___used to distribute their products or provide their services
e. If applicable, the nature of the ___ environment, for example, banking, insurance, or public utilities

Answer 9

Products

Production

customer

Methods

Regulatory

Question 10

After an enterprise has identified its operating segments (including those that represent an aggregation of two or more separate segments), it must report separately information about each operating segment that meets any one or more of the following tests. Those segments that meet at least one of the tests represent reportable segments for which specified information must be reported.

a. ___test: If its revenue is 10% or more of the combined revenue of all operating segments (for purposes of this test, revenue includes both sales to external customers and intersegmental sales or transfers)

b. ___test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:
(1) the combined reported profit of all operating segments that did not report a loss or
(2) the combined reported loss of all operating segments that did report a loss

c. ___test: If its assets are 10% or more of the combined assets of all operating segments

Answer 10

Revenue

Profitability

Asset

Question 11

n operating segment must have all of the following characteristics, except:

engages in activities that may earn revenues and incur expenses.

separate legal standing as a sole proprietorship, partnership, corporation, or corporate joint venture.

its operating results are regularly reviewed by the chief operating decision maker.

discrete information about that part of the enterprise is available.

Answer 11

separate legal standing as a sole proprietorship, partnership, corporation, or corporate joint venture.

An important dimension of FASB ASC 280-10-50-1 is the notion of operating segments, which are defined as components of a business enterprise:

• that engage in business activities from which the enterprise may earn revenues and incur expenses (including transactions with other segments),
• whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resource allocation and to assess performance, and
• for which discrete financial information is available.

Question 12

An important dimension of operating segments, which are defined as components of a business enterprise:

• that engage in ___ activities from which the enterprise may earn revenues and incur expenses (including transactions with other segments),
• whose operating results are regularly ___ by the enterprise’s chief operating decision maker to make decisions about resource allocation and to assess performance, and
• for which discrete ___ information is available.

Answer 12

business

reviewed

financial

Question 13

Which of the following are required as part of the filing of the Form 10-K?

Neither a comprehensive report of a company’s business and financial condition nor audited financial statements are required.

Both a comprehensive report of a company’s business and financial condition and audited financial statements

A comprehensive report of a company’s business and financial condition

Audited financial statements

Answer 13

Both a comprehensive report of a company’s business and financial condition and audited financial statements

Form 10-K is the required annual report. It provides a comprehensive report of a company’s business and financial condition, including audited financial statements.

Question 14

Form ___ is the required annual report. It provides a comprehensive report of a company’s business and financial condition, including audited financial statements.

Answer 14

10-k

Question 15

A company is an accelerated filer that is required to file Form 10-K with the U.S. Securities and Exchange Commission (SEC). What is the maximum number of days after the company’s fiscal year-end that the company has to file Form 10-K with the SEC?

60 days

75 days

120 days

90 days

Answer 15

75 days

Annual 10-K reports are due within 75 days for fiscal years for accelerated filers as defined in 17 CFR 240.12b-2. The requirement is 90 days for other filers. The deadline for filing quarterly reports (10-Q) is 40 days for accelerated filers.

Question 16

Which of the following factors determines whether an identified segment of an enterprise should be reported in the enterprise’s financial statements under FASB ASC 280-10-50-12 (Quantitative Thresholds)?

1. The segment’s assets constitute more than 10% of the combined assets of all operating segments.
2. The segment’s liabilities constitute more than 10% of the combined liabilities of all operating segments.

Neither I nor II

I only

Both I and II

II only

Answer 16

I only

FASB ASC 280-10-50-12 establishes three primary criteria for determining reportable segments: “A public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds…:

1. “Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments.
2. “The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either:
   
   1. “The combined reported profit of all operating segments that did not report a loss
   2. “The combined reported loss of all operating segments that did report a loss.
3. “Its assets are 10 percent or more of the combined assets of all operating segments.”

Question 17

Which of the following combinations of capital structure and EPS reporting is correct?

Simple capital structure requires the reporting of basic and diluted EPS.

Complex capital structure requires the reporting of only basic EPS.

Complex capital structure requires the reporting of basic and diluted EPS.

Simple capital structure requires the reporting of only diluted EPS.

Answer 17

Complex capital structure requires the reporting of basic and diluted EPS.

When an entity that is required to report earnings per share (EPS) has a simple capital structure, the entity is required to only report basic EPS on the face of the income statement.

When an entity that is required to report EPS has a complex capital structure, it is required to report both basic EPS and diluted EPS on the face of the income statement.

Question 18

Timp, Inc., had the following common stock balances and transactions during 20X1:

01/01/X1 Common stock shares outstanding 30,000
02/01/X1 Issued a 10% common stock dividend 3,000
07/01/X1 Issued common stock for cash 8,000
12/31/X1 Common stock outstanding 41,000
======

What was Timp’s 20X1 weighted-average shares outstanding?

37,000

41,000

36,750

41,800

Answer 18

37,000

Question 19

Stock splits and stock dividends are treated ___ in the computation of EPS, both for the current period and any prior periods presented for comparative purposes.

Answer 19

retroactively (this means that it adjusts all historical information to reflect the split/dividend)

Question 20

Disclosure is required by publicly held companies if 10% or more of total revenues are derived from:

intersegmental sales or transfers only.

sales to external customers only.

sales to external customers and intersegmental sales or transfers.

sales to external and internal customers only.

Answer 20

sales to external customers and intersegmental sales or transfers.

After an enterprise has identified its operating segments (including those that represent an aggregation of two or more separate segments), it must report separately information about each operating segment that meets any one or more of the following tests:

• Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments (revenue includes both sales to external customers and intersegmental sales or transfers)
• Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:
  
  1. the combined reported profit of all operating segments that did not report a loss or
  2. the combined reported loss of all operating segments that did report a loss
• Asset test: If its assets are 10% or more of the combined assets of all operating segments

Question 21

A U.S. public company with a worldwide public float of $800 million at the end of the second quarter of the fiscal year is required to file its annual report with the U.S. SEC on:

Form 10-K within 75 days after the end of the reporting period.

Form 10-Q within 45 days after the end of the reporting period.

Form 10-K within 60 days after the end of the reporting period.

Form 10-Q within 40 days after the end of the reporting period.

Answer 21

Form 10-K within 60 days after the end of the reporting period.

The Form 10-K represents the annual report for public entities and the Form 10-Q represents the quarterly report. Entities classified as large accelerated filers must file their annual Form 10-K within 60 days of the end of the reporting period. The large accelerated filer status applies to entities with a public float of $700 million or more.

The quarterly Form 10-Q must be filed within 40 days for large accelerated filers. However, this problem asks about the annual report only.

Question 22

10K deadlines

1. Large Accelerated Filer (More than $700m in revenue)
2. Accelerated Filer (At least $100m in revenue)
3. Non-accelerated Filer (Less than $100m in revenue)

10-Q Deadlines

1. Large Accelerated Filer (More than $700m in revenue)
2. Accelerated Filer (At least $100m in revenue)
3. Non-accelerated Filer (Less than $100m in revenue)

Answer 22

10K deadlines

1. 60 days
2. 75 days
3. 90 days

10-Q Deadlines

1. 40 days
2. 40 days
3. 45 days

Question 23

Which of the following is not an item that is required to be disclosed about reportable segments’ profit or loss (assuming that the item was included in the determination of profit or loss)?

Rent expense

Revenues from transactions with other operating segments of the same enterprise

Interest expense

Depreciation, depletion, and amortization expense

Answer 23

Rent expense

FASB ASC 280-10-50-22 specifically lists the following as requiring disclosure:

• Revenues from external customers
• Revenues from transactions with other operating segments of the same enterprise
• Interest revenue
• Interest expense
• Depreciation, depletion, and amortization expense
• Unusual items as described in FASB ASC 225-20
• Equity in the net income of investees accounted for by the equity method
• Income tax expense or benefit
• Significant noncash items other than depreciation, depletion, and amortization expense

Question 24

An enterprise must disclose a measure of profit or loss and total assets for each reportable segment. an enterprise must disclose the following about each reportable segment if the specified amounts are included in the segment’s measure of profit or loss:

a. Revenues from ___customers
b. Revenues from transactions with other ___ segments
c. ___revenue
d. ___expense
e. ___, depletion, and amortization expense

Answer 24

External

operating

interest

interest

Depreciation

Unusual

Question 25

Which of the following reports would a company file to meet the U.S. Securities and Exchange Commission’s requirements for unaudited, interim financial statements reviewed by an independent accountant?

Form 10-K

Form S-1

14A Proxy Statement

Form 10-Q

Answer 25

Form 10-Q

SEC Form 10-Q is the quarterly report and would be used to file interim information.

Form 10-K is the required annual report. SEC Form S-1 is the initial registration form for new securities required by the SEC for public companies. The SEC requires that shareholders of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934 receive a proxy statement (pursuant to Section 14(a)) prior to an annual or special meeting.

Question 26

A and B only

Answer 26

Question 27

Answer 27

Five

To be a reportable segment, the segment must report revenue, profit, or assets of 10% of the total entity. Segment F does not have 10% of any of these attributes, so it is not reported as a segment, leaving five reportable segments (A–E).

Question 28

Which of the following forms must be filed annually with the SEC?

Form 10-K

Form 10-Q

Form 990

Form 1065

Answer 28

Under federal securities laws, publicly traded companies are required to file forms with the SEC periodically. The forms are available to anyone using the EDGAR database at www.sec.gov. The most common forms are the 10-K and the 10-Q. These forms must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Form 10-K is the required annual report. It provides a comprehensive report of a company’s business and financial condition, including audited financial statements. Form 10-Q is the quarterly report required to be filed with the SEC by all publicly traded companies. The Form 10-Q contains financial statements, a discussion from the management, and a list of “material events” that have occurred with the company.

Question 29

Which of the following is the annual report that is filed with the United States Securities and Exchange Commission?

Form 10-K

Form S-1

Form 8-K

Form 10-Q

Answer 29

Form 10-K

SEC Form 10-K is the required annual report; it provides a comprehensive picture of a company’s business and financial condition, including audited financial statements.

SEC Form 10-Q is the quarterly report. SEC Form 8-K reports current events which may have a material or significant impact on a company’s performance; it is filed as needed. Form S-1 is the initial registration form for public companies issuing new securities.

Question 30

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers?

Information on major customers is not required in segment reporting.

The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues

The identity of any external customer providing 10% or more of a particular operating segment’s revenue

The identity of any external customer considered to be “major” by management

Answer 30

The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues

The FASB requires the following with respect to enterprise-wide disclosures about major customers:

After an enterprise has identified its operating segments (including those that represent an aggregation of two or more separate segments), it must report separately information about each operating segment that meets any one or more of the following tests:

• Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments (revenue includes both sales to external customers and intersegmental sales or transfers)
• Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:
  
  1. the combined reported profit of all operating segments that did not report a loss or
  2. the combined reported loss of all operating segments that did report a loss
• Asset test: If its assets are 10% or more of the combined assets of all operating segments

Question 31

Criteria that identify operating segments that may be combined in identifying reportable segments include all of the following, except:

type or class of customer.

nature of products and services.

overlapping personnel.

distribution methods for products or services.

Answer 31

overlapping personnel..

In applying these criteria, operating segments may be combined in order to meet these criteria if they have the following similar characteristics:

• Nature of products and services
• Nature of the production processes
• Type or class of customer
• Distribution methods for products or services
• Nature of regulatory environment (if appropriate)

Question 32

A U.S. publicly traded company’s second fiscal quarter ends on March 31. If the company is an accelerated filer, what is the latest date that the Form 10-Q should be filed with the U.S. Securities and Exchange Commission (SEC)?

May 30

June 29

May 10

May 15

Answer 32

May 10

SEC Form 10-Q is the quarterly report. Large accelerated filers ($700 million or more) and accelerated filers ($75 million or more and less than $700 million, and at least $100 million in annual revenues) must file their Form 10-Q within 40 days of quarter-end; non-accelerated filers (less than $75 million or less than $100 million in annual revenues) must file within 45 days.

Therefore, an accelerated filer with a second fiscal quarter-end of March 31 must file by May 10.

Question 33

An entity is required to disclose:

All of the answer choices are correct.

the effect given to preferred dividends in income available to common shareholders.

a reconciliation of the numerators and denominators of the basic and diluted EPS computations.

securities that could be diluted in the future that were excluded from the current period’s diluted EPS because they were not dilutive.

Answer 33

a reconciliation of the numerators and denominators of the basic and diluted EPS computations.

FASB ASC 260-10-50 requires disclosure of a reconciliation, effect of preferred dividends, and antidiluted securities.

Question 34

Basic earnings per share for income from continuing operations and for net income are reported:

on the face of the income statement.

if diluted earnings per share are presented.

in the notes to the financial statements.

for the current period only.

Answer 34

on the face of the income statement.

Basic EPS is reported on the face of the income statement.

Question 35

A company reported net income available to common stockholders of $2,000,000 for the year ended December 31, year 2. The company had 1,500,000 shares of common stock outstanding as of January 1, year 2, and issued 500,000 additional shares of common stock on May 1, year 2. What amount is the company’s basic earnings per share for the year ended December 31, year 2?

$1.09

$1.33

$1.00

$1.20

Answer 35

$1.09

Question 36

A company had the following outstanding shares as of January 1, Year 2:

Preferred stock, $60 par, 4%, cumulative 10,000 shares
Common stock, $3 par 50,000 shares

On April 1, Year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, Year 2, and no dividends were declared or paid during Year 2. Net income for Year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, Year 2?

$4.21

$3.79

$3.66

$4.07

Answer 36

$3.79

Basic earnings per share (EPS) is net income divided by weighted-average common stock outstanding (WACSO). Net income must be reduced by preferred cumulative dividends.

• Net income - Preferred cumulative dividend = $236,000 - ($600,000 × 0.04) = $212,000
• WACSO = 50,000 shares + (8,000 shares × 9/12) = 56,000 shares
• Basic EPS = $212,000 ÷ 56,000 shares = $3.79/share

Question 37

Cott Co.’s four operating segments have revenues and identifiable assets expressed as percentages of Cott’s total revenues and total assets as follows:

Revenues Assets
(%) (%)
Fain 64 66
Ebon 14 18
Gel 14 4
Hak 8 12
100 100
=== ===

Which of these operating segments are deemed to be reportable operating segments?

Ebon, Fain, and Gel only

Ebon only

Ebon and Fain only

Ebon, Fain, Gel, and Hak

Answer 37

Ebon, Fain, Gel, and Hak.

All four of Cott Co.’s operating segments are deemed to be reportable segments. Ebon, Fain, and Gel qualify as reportable segments because they each have revenues that are 10% or more of combined revenues.

Hak qualifies as a reportable segment because its identifiable assets are 10% or more of the combined assets of all operating segments.

Question 38

ABC Co. is a public company that is required to file financial reports with the U.S. Securities and Exchange Commission (SEC). ABC acquired a significant related business, Bauer Co., through the registration and issuance of additional shares of common stock to the former stockholders of Bauer. Which of the following forms should ABC file with the SEC as a result of the acquisition of Bauer?

Form 10-K

Form 10-Q

Form S-K

Form 8-K

Answer 38

Form 8-K

SEC Form 8-K reports material current events on a more current basis than regularly filed statements, allowing investors to obtain information in a timely manner about activity which may have a material or significant impact on a company’s performance; this would include acquisitions.

While the issuance of shares for a related business would likely also appear in Forms 10-K and 10-Q, those filings are filed in regular time intervals (annually and quarterly, respectively).

The company should file a Form 8-K at the time of the transaction to inform financial statement users more expeditiously.

Question 39

SEC Regulation ___ contains the instructions for filing the nonfinancial statement forms (disclosure) required under the Securities Act of 1933, Securities Exchange Act of 1934, and Energy Policy and Conservation Act of 1975.

SEC Regulation S-X prescribes the ___ and ___ of, and the requirements for, financial statements.

Answer 39

S-K

Form and Content

Question 40

The diluting effect of options and warrants and their equivalents is reflected in diluted EPS by application of the treasury stock method, which assumes that proceeds from exercise are used to:

purchase common stock at the average market price.

retire convertible debentures that were issued at par.

issue treasury stock.

retire treasury stock.

Answer 40

purchase common stock at the average market price.

Exercise of options and warrants is assumed at the beginning of the period. Proceeds are assumed used to purchase common stock at the average market price during the period. The incremental shares are included in the denominator of diluted earnings per share (EPS).

Question 41

Stock options and warrants outstanding (whether or not presently exercisable) (should be/should NOT be) included in diluted EPS (earnings per share) calculations unless they are antidilutive.

Answer 41

Should be

Question 42

How is the Form 10-K filed with the SEC?

The form must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

The form is prepared and stored internally with period audits by the SEC to insure compliance.

None of the answer choices are correct.

A paper form is filed annually.

Answer 42

The form must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Under federal securities laws, publicly traded companies are required to file forms with the SEC periodically. The forms are available to anyone using the EDGAR database at www.sec.gov. The most common forms are the 10-K and the 10-Q. These forms must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Form 10-K is the required annual report. It provides a comprehensive report of a company’s business and financial condition, including audited financial statements

Question 43

Each of the following events is required to be reported to the United States Securities and Exchange Commission on Form 8-K, except:

the creation of an obligation under an off-balance sheet arrangement of a registrant.

the unregistered sale of equity securities.

a change in a registrant’s certifying accountant.

the quarterly results of operations and financial condition of a registrant.

Answer 43

the quarterly results of operations and financial condition of a registrant.

Public compa­nies must report certain material corporate events on a more current basis than quarterly (on Form 10-Q) or annually (on Form 10-K). Form 8-K reports current events, allowing investors to obtain infor­mation in a timely manner about events material to a company’s performance.

Some of the most common events reported on Form 8-K include a change in a registrant’s certifying accountant, notification about entering into material agreements (including merger agreements and sales of securities), and entering into debt or other direct financial obligations.

Companies have four business days from the event date to file a Form 8-K.

Question 44

Which of the following entities requires the filing of the Form 10-Q?

AICPA

SEC

PCAOB

IRS

Answer 44

SEC

Under federal securities laws, publicly traded companies are required to file forms with the SEC periodically. The forms are available to anyone using the EDGAR database at www.sec.gov. The most common forms are the 10-K and the 10-Q. These forms must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Form 10-Q is the quarterly report required to be filed with the SEC by all publicly traded companies. The Form 10-Q contains financial statements, a discussion from the management, and a list of “material events” that have occurred with the company.

Question 45

Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative preferred stock. No dividends on common stock were declared during the year. Net income was $2,000,000. What was Jen’s basic earnings per share?

$9.09

$10.00

$11.11

$9.00

Answer 45

$9.00

Basic earnings per share is (Net income - Preferred stock dividends) ÷ Weighted-average common shares.

• $2,000,000 - (20,000 × $100 × 0.10) ÷ 200,000 = $9.00

Question 46

Conceptually, using an inventory estimation method like the gross profit method at interim reporting periods instead of doing a physical inventory count can be described as emphasizing:

comparability over neutrality.

timeliness over faithful representation.

faithful representation over relevance.

relevance over comparability.

Answer 46

timeliness over faithful representation.

Interim financial statements emphasize timeliness over faithful representation.

Using the gross profit method, which is a type of estimation, can sacrifice accuracy because the company does not take a physical count of inventory, but is acceptable for interim reporting, which has a greater need for timeliness.

Question 47

A company is required to file quarterly financial statements with the U.S. Securities and Exchange Commission on Form 10-Q. The company operates in an industry that is not subject to seasonal fluctuations that could have a significant impact on its financial condition. In addition to the most recent quarter-end, for which of the following periods is the company required to present balance sheets on Form 10-Q?

The end of the corresponding fiscal quarter of the preceding fiscal year

The end of preceding fiscal year

The end of the preceding fiscal year and the end of the prior two fiscal years

The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the preceding fiscal year

Answer 47

The end of preceding fiscal year

Form 10-Q is used to file quarterly reports with the SEC. Required financial statements include a quarterly and end of the preceding fiscal year balance sheet. If the company is subject to seasonal fluctuations, a balance sheet for the corresponding quarter of the prior fiscal year is required.

Question 48

For the purpose of determining that no additional segments should be reported, the total of external revenues of all reportable segments must make up at least what percentage of total consolidated revenues?

50%

85%

60%

75%

Answer 48

75%

Additional guidance for identifying reportable segments and presenting information about reportable segments is provided in FASB ASC 280-10-50-14. Additional operating segments shall be identified unless:

• the total of external revenues of all reportable segments must make up at least 75% of the total consolidated revenues or
• an operating segment that previously met the criteria as a reportable segment, but does not meet those criteria in the current period, may still be treated as a reportable segment if management judges it to be of continuing significance.

Question 49

Glinko Corporation has convertible bonds as part of its capital structure. The bonds were issued at par and have a face value of $300,000. The interest rate on the bonds is 5%. If Glinko has an income tax rate of 35%, what is the amount that will be added to the numerator in the computation of diluted earnings per share?

$5,250

$15,000

$105,000

$9,750

Answer 49

$9,750

The amount to be added back is the after-tax amount of the interest expense on the bonds that Glinko will have added back to net income if the bonds were converted. The annual interest expense on the bonds is $15,000 ($300,000 × .05).

The annual interest expense is multiplied by the tax rate and then that amount is subtracted from the annual interest expense to arrive at after-tax interest expense ($15,000 × 0.35 = $5,250; $15,000 – $5,250 = $9,750).

The amount can be more efficiently computed in the following manner: $15,000 × (1 – 0.35) = $9,750.

Question 50

Ute Co. had the following capital structure during 20X1 and 20X2:

Preferred stock, $10 par, 4%
cumulative, 25,000 shares issued
and outstanding $ 250,000
Common stock, $5 par, 200,000
shares issued and outstanding 1,000,000

Ute reported net income of $500,000 for the year ended December 31, 20X2. Ute paid no preferred dividends during 20X1 and paid $16,000 in preferred dividends during 20X2. In its December 31, 20X2, income statement, what amount should Ute report as basic earnings per share?

$2.50

$2.48

$2.42

$2.45

Answer 50

$2.45

Question 51

Fleming Co.’s five operating segments have revenues and profits/losses as shown below:

Revenues ($)__Profit/(Loss) ($)
Rust 64 13
Slad 12 (25)
Tov 26 21
Ulp 8 4
Vin 28__(17)
138 (4)
=== ====

Which of these operating segments are deemed to be reportable operating segments?

Rust, Slad, Tov, Ulp, and Vin

Rust and Slad only

Rust, Tov, and Vin

Rust, Slad, Tov, and Vin

Answer 51

Rust, Slad, Tov, and Vin

Once an enterprise identifies its operating segments, it must report information separately for each operating segment that meets any of the following three tests:

1. Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments
2. Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute terms, of:
   a. the combined reporting profit of all operating segments that did not report a loss or
   b. the combined reported loss of all operating segments that did report a loss
3. Asset test: If its assets are 10% or more of the combined assets of all operating segments

Following these rules, segments must be reported if:

1. Revenue > = $13.8 ($138 × 10%)
   Segments meeting requirement: Rust, Tov, and Vin
2. Profit or loss > = $4.2 ($42 combined losses × 10%) > ($38 combined profit)
   Segments meeting requirement: Rust, Slad, Tov, and Vin

An operating segment must only meet one test to require separate reporting. Under the revenue test or the profitability test, Rust, Slad, Tov, and Vin would have to report separately. Ulp is not required to report under either the revenue or profitability test.

Question 52

Ian Co. is calculating earnings per share amounts for inclusion in Ian’s annual report to shareholders. Ian has obtained the following information from the controller’s office as well as shareholder services:

Net income from January 1 to December 31 $125,000

Number of outstanding shares:
January 1 to March 31 15,000
April 1 to May 31 12,500
June 1 to December 31 17,000

In addition, Ian has issued 10,000 incentive stock options with an exercise price of $30 to its employees and a year-end market price of $25 per share. What amount is Ian’s diluted earnings per share for the year ended December 31?

$4.85

$4.63

$7.35

$7.94

Answer 52

$7.94

The exercise of the incentive stock options would be antidilutive since the exercise price exceeds the market price of the stock.

Weighted-average shares:
January 1 to March 31 (3/12 x 15,000) 3,750
April 1 to May 31 (2/12 x 12,500) 2,083
June 1 to December 31 (7/12 x 17,000) 9,917
Total 15,750

$125,000 / 15,750 = $7.94

Question 53

Which of the following are required as part of the filing of the Form 10-Q?

Financial statements

All of the answer choices are correct.

A discussion from the management

A list of “material events” that have occurred with the company

Answer 53

All of the answer choices are correct.

Form 10-Q is the quarterly report required to be filed with the SEC by all publicly traded companies. The Form 10-Q contains financial statements, a discussion from the management, and a list of “material events” that have occurred with the company.

Question 54

During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of $20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 30 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What amount was Comma’s basic earnings per share for the current year?

$8.00

$7.55

$3.38

$7.36

Answer 54

$7.36

Convertible bonds do not affect basic earnings per share. They are used in computing diluted earnings per share. When the preferred stock dividend preference is cumulative, the current-year dividend on preferred stock must be deducted each year in computing the numerator for basic earnings per share, regardless of the amount of preferred dividends actually declared and/or paid.

Comma’s basic earnings per share for the current year is:

• ($200,000 - $16,000) ÷ 25,000 weighted-average shares outstanding
• $184,000 ÷ 25,000 shares = $7.36 per common share

Question 55

Answer 55

Lion, Monk, and Nevi

If an operating segment’s revenue (sales to unaffiliated customers and intersegment sales) is “10% or more of the combined revenue…of all the enterprise’s industry segments,” it is a reportable segment.

For Terra Co.:

Segment Revenues / Total = Percentage
Lion $100,000 / $150,000 = 66.67%
Monk 26,000 / 150,000 = 17.33%
Nevi 24,000 / 150,000 = 16.00%

All of Terra Co.’s segments are reportable.

Since all these meet the revenue test, it is not necessary to apply the other two tests (asset test and profit/loss test).

Question 56

Which of the following should be disclosed for each reportable operating segment of an enterprise?

Profit or loss

Both profit or loss and total assets

Neither profit or loss nor total assets

Total assets

Answer 56

Both profit or loss and total assets

FASB ASC 280-10-50-22 requires a measure of both profit or loss and total assets to be disclosed for each reportable segment of an enterprise. That paragraph states:

“A public entity shall report a measure of profit or loss and total assets for each reportable segment.”

Question 57

Which of the following types of entities are required to report on business segments?

Publicly traded enterprises

Nonpublic business enterprises

Joint ventures

Not-for-profit enterprises

Answer 57

Publicly traded enterprises

FASB ASC 280-10-50-10 requires publicly held business enterprises to report certain information about their operating segments in their annual financial statements.

Question 58

Publicly held enterprises are also required to report certain information about:

a. their ___ and ___.
b. the ___areas in which they operate.
c. their ___customers.

Answer 58

products and services

geographic

major

Question 59

Peters Corp.’s capital structure was as follows:

12/31/X1 12/31/X2
Outstanding shares of stock:
Common 110,000 145,000
Convertible preferred 10,000 0
8% convertible bonds 1,000,000 500,000

On May 1, 20X2, the preferred shares were converted into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of common stock. On July 1, $500,000 of the bonds were converted. Net income for 20X2 was $850,000. Assume that the income tax rate is 30%. What is the basic earnings per share for 20X2?

$6.50

$6.54

$5.86

$6.80

Answer 59

$6.50

Question 60

Balm Co. had 100,000 shares of common stock outstanding as of January 1. The following events occurred during the year:

• 4/1: Issued 30,000 shares of common stock
• 6/1: Issued 36,000 shares of common stock
• 7/1: Declared a 5% stock dividend
• 9/1: Purchased as treasury stock 35,000 shares of its common stock. Balm used the cost method to account for the treasury stock.

What is Balm’s weighted average of common stock outstanding at December 31?

131,000

139,008

162,342

150,675

Answer 60

139,008

Question 61

Assuming that the 10% of revenue test is met, which of the following is considered a major customer for purposes of meeting the disclosure requirements of FASB ASC 280-10-50 on segment reporting?

A state government

All of the answer choices are correct.

A local government

A foreign government

Answer 61

All of the answer choices are correct.

Information about the extent of reliance on major customers is required where 10% or more of the enterprise’s revenue is derived from a single customer. Required information is:

• the fact that one (or more) individual customer(s) account for 10% or more of the enterprise’s revenue.
• the total amount of revenue from each such customer.
• identification of the segment(s) reporting the revenue.

In meeting these requirements, the identity of the customer is not necessary. A group of entities under common control are considered a single customer, as are each of the following: the federal government, a state government, a local government, and a foreign government.

Question 62

SEC Regulation S-X provides guidance for the issuer regarding:

nonfinancial forms and disclosures required by the SEC.

format and content of financial information submitted to the SEC.

instructions on electronically filing the forms required by the SEC.

the use of EDGAR by SEC registrants.

Answer 62

format and content of financial information submitted to the SEC.

Regulation S-X contains information regarding the financial statements that must be submitted to the SEC.

Regulation S-K contains the instructions for filing the nonfinancial statement forms required by the SEC. Regulation S-T contains instructions for the electronic filing of required SEC forms.

Both Regulation S-K and S-T should be read together, as some parts of Regulation S-X may supersede the instructions in Regulation S-K.

Question 63

An enterprise must separately report information about an operating segment when the segment’s revenue meets what minimum percentage of the combined revenue of all reported operating segments?

20%

50%

10%

5%

Answer 63

10%

FASB ASC 280-10-50-12 requires separate reporting when the operating segment’s revenue is 10% or more of the combined revenue, internal and external, of all operating segments.

Question 64

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in:

Regulation S-K.

Regulation S-X.

Regulation S-B.

Regulation S-T.

Answer 64

Regulation S-X.

SEC Regulation S-X prescribes the form, content, and presentation of and disclosure requirements for financial statements.

SEC Regulation S-K contains the instructions for filing nonfinancial statement forms required under the Securities Act of 1933, Securities Exchange Act of 1934, and Energy Policy and Conservation Act of 1975. Regulation S-T governs the electronic submission of required forms. Due to the fact that the SEC requires electronic filing now, the instructions set forth in Regulation S-T may supersede those in Regulation S-K. Regulation S-B outlines the disclosure requirements that small business issuers must follow under the Securities Act of 1933 and Securities Exchange Act of 1934.

Question 65

A company has a total revenue of $1,000,000, profits of $90,000, total assets of $10,000,000, and total liabilities of $5,000,000. Operating segment Sun has revenues of $95,000, profit of $10,000, assets of $900,000, and liabilities of $550,000. Which of the following tests makes Sun a reportable segment?

Asset test

Profit test

Liability test

Revenue test

Answer 65

Profit test

Operating segments that meet at least one of the following tests represent reportable segments for which specified information must be reported (note: there is not a liability test):

Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments
[$95,000 ÷ $1,000,000 = 9.5% < 10%; Sun fails the test]

Asset test: If its assets are 10% or more of the combined assets of all operating segments
[$900,000 ÷ $10,000,000 = 9% < 10%; Sun fails the test]

Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:

1. the combined reported profit of all operating segments that did not report a loss or [$10,000 ÷ $90,000 = 11% > 10%; Sun passes the test]
2. the combined reported loss of all operating segments that did report a loss (not enough information)

Question 66

Toft Co. had 120,000 shares of common stock outstanding at January 1. On April 1, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible preferred stock on which a dividend of $5 per share was declared during the year. Net income for the year was $480,000. What should Toft report as earnings per share for the year?

$3.00

$3.20

$2.69

$2.87

Answer 66

$2.87

Question 67

The following information pertains to Jet Corp.’s outstanding stock for 20X1:

Common stock, $5 par value
Shares outstanding, 01/01/X1 20,000
2-for-1 stock split, 04/01/X1 20,000
Shares issued, 07/01/X1 10,000

Preferred stock, $10 par value, 5% cumulative
Shares outstanding, 01/01/X1 4,000

What are the number of shares Jet should use to calculate 20X1 earnings per share?

54,000

40,000

45,000

50,000

Answer 67

Question 68

How is the Form 10-Q filed with the SEC?

A paper form is filed quarterly.

None of the answer choices are correct.

This form must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

The form is prepared and stored internally with period audits by the SEC to insure compliance.

Answer 68

This form must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Under federal securities laws, publicly traded companies are required to file forms with the SEC periodically. The forms are available to anyone using the EDGAR database at www.sec.gov. The most common forms are the 10-K and the 10-Q. These forms must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Form 10-Q is the quarterly report required to be filed with the SEC by all publicly traded companies. The Form 10-Q contains financial statements, a discussion from the management, and a list of “material events” that have occurred with the company.

Question 69

At the beginning of the year, Stam Co. had 200,000 shares of common stock issued and outstanding. On March 31, the company issued 40,000 additional shares. On July 1, it declared and distributed a 50% stock dividend and on September 30 repurchased 10,000 shares as treasury stock. What amount of shares should Stam use to calculate basic earnings per share?

345,000

342,500

287,500

360,000

Answer 69

342,500

This question is essentially asking for the denominator in the basic earnings per share (EPS) calculation. The denominator is the weighted-average common shares outstanding and can be found in the following manner:

• 300,000 (200,000 + 100,000 stock dividend*) shares outstanding × 3/12 months (Jan.–March) = 75,000
• 360,000 (240,000 + 120,000 stock dividend*) shares outstanding × 6/12 months (April–June) = 180,000
• 350,000 (360,000 – 10,000 treasury stock) shares outstanding × 3/12 months (Oct.–Dec.) = 87,500

The denominator is the sum of the weighted averages: 342,500 shares (75k + 180k + 87.5k).

* The stock dividend is treated as if it occurred at the beginning of the year per GAAP rules.

Question 70

Which of the following is not an item that is required to be disclosed about reportable segments’ profit or loss (assuming that the item was included in the determination of profit or loss)?

Interest revenue

Income tax expense or benefit

Insurance expense

Equity in the net income of investees accounted for by the equity method

Answer 70

Insurance expense

FASB ASC 280-10-50-22 specifically lists the following as requiring disclosure:

• Revenues from external customers
• Revenues from transactions with other operating segments of the same enterprise
• Interest revenue
• Interest expense
• Depreciation, depletion, and amortization expense
• Unusual items as described in FASB ASC 220-20-45-1
• Equity in the net income of investees accounted for by the equity method
• Income tax expense or benefit
• Significant noncash items other than depreciation, depletion, and amortization expense

Question 71

FASB ASC 280-10-50-22 specifically lists the following as requiring disclosure:

• Revenues from ___customers
• Revenues from transactions with other operating segments of the __enterprise
• ___revenue
• ___expense
• ___, depletion, and amortization expense
• ___items as described in FASB ASC 220-20-45-1
• ___in the net income of investees accounted for by the equity method
• ___tax expense or benefit
• Significant ___items other than depreciation, depletion, and amortization expense

Answer 71

external

same

interest

interest

depreciation

unusual

Equity

Income

noncash

Question 72

The following information pertains to Ceil Co., a company whose common stock trades in a public market:

Shares outstanding at 1/1 100,000
Stock dividend at 3/31 24,000
Stock issuance at 6/30 5,000

What is the weighted-average number of shares Ceil should use to calculate its basic earnings per share for the year ended December 31?

123,000

126,500

120,500

129,000

Answer 72

Question 73

The FASB believes that, as a general policy, there is a maximum number of reportable segments about which information should be provided. What is the number?

10

20

5

15

Answer 73

10

• If an operating segment becomes reportable because it meets one or more of the quantitative criteria in the current period but did not meet those criteria previously, prior-period segment information that is presented for comparative purposes should be restated, unless it is not practicable to do so.
• Information about operating segments that do not meet any of the quantitative criteria, and that are not combined with other operating segments to create reportable segments, are combined and presented in an “all other” category.
• As a practical limit, more than 10 reportable segments is a recommended level at which management should consider whether its presentation of segment information has become overly detailed.

Question 74

Which of the following qualifies as a reportable operating segment?

North American segment, whose assets are 12% of the company’s assets of all segments, and management reports to the chief operating officer

Eastern Europe segment, which reports its results directly to the manager of the European division, and has 20% of the company’s assets, 12% of revenues, and 11% of profits

Corporate headquarters, which oversees $1 billion in sales for the entire company

South American segment, whose results of operations are reported directly to the board of directors, and has 5% of the company’s assets, 9% of revenues, and 8% of the profits

Answer 74

North American segment, whose assets are 12% of the company’s assets of all segments, and management reports to the chief operating officer

Only the North American segment meets at least one of the three quantitative criteria at the 10% level (revenue, income, assets) AND reports to the chief operating decision maker of the firm as a whole. For all three criteria, the segment must account for 10% or more of the combined amount for all operating segments. Reporting to the company-wide chief operating decision maker is also a requirement of an operating segment.

Question 75

Quantitative criteria for identifying reportable segments include all of the following, except:

the segment uses 10% or more of the company’s assets.

the segment has 10% or more of the company’s long-term debt.

the segment is responsible for 10% or more of the company’s revenues.

the segment is responsible for 10% or more of the company’s operating profit or loss.

Answer 75

the segment has 10% or more of the company’s long-term debt.

An operating segment is a reportable segment if it meets one or more of the following quantitative criteria:

• Its revenue (both internal and external) is 10% or more of the combined revenue of all operating segments.
• The amount of its reported profit or loss is 10% or more of the greater of the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss. (In making these determinations, the absolute value of all figures is used.)
• Its assets make up 10% or more of the combined assets of all operating segments.

Question 76

A company that is a large accelerated filer must file its Form 10-Q with the U.S. Securities and Exchange Commission within how many days after the end of the period?

30 days

40 days

45 days

60 days

Answer 76

Form 10-Q is the quarterly report required by the SEC for publicly traded companies. The due date is 40 days after the end of the quarter to which it applies.

Question 77

Answer 77

Segments 1, 2, and 3

Segment reporting follows the informal rule of 10. If a segment represents at least 10% of total assets, total revenues, or total profits, it must provide key disclosures. The 10% profits rule is based on the absolute value of profits. For example, a $2 loss in a segment for a company that made $5 would be required to provide key disclosures.

Segment 1 meets the 10% test for assets, revenues, and profits. Segment 2 meets the asset and revenues test. Segment 3 meets the asset and profits (1.5 ÷ 10 = 15%). Segment 4 meets none of the tests as $9 billion in assets for a $100 billion company is only 9%.

Question 78

Deck Co. had 120,000 shares of common stock outstanding at January 1, 20X1. On July 1, 20X1, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to calculate 20X1 earnings per share?

160,000

150,000

170,000

140,000

Answer 78

140,000

120,000 shares × 6/12 year 60,000
(120,000 shares + 40,000 shares) × 6/12 year 80,000
Weighted-average shares outstanding 140,000
=======

Question 79

The following information is relevant to the computation of Chan Co.’s earnings per share to be disclosed on Chan’s income statement for the year ending December 31:

• Net income for the year is $600,000.
• $5,000,000 face value 10-year convertible bonds outstanding on January 1. The bonds were issued four years ago at a discount that is being amortized in the amount of $20,000 per year. The stated rate of interest on the bonds is 9%, and the bonds were issued to yield 10%. Each $1,000 bond is convertible into 20 shares of Chan’s common stock.
• Chan’s corporate income tax rate is 25%.

Chan has no preferred stock outstanding and no other convertible securities. What amount should be used as the numerator in the fraction used to compute Chan’s diluted earnings per share assuming that the bonds are dilutive securities?

$952,500

$130,000

$1,070,000

$247,500

Answer 79

$952,500

The numerator will be Net income + Interest (net of tax).

Net income $600,000
Interest:
Cash ($5,000,000 x .09) $450,000
Discount amortization 20,000
Tax ($470,000 x (1-.25)) =352,000
Numerator $952,500 (352000+600000)

Question 80

Chape Co. had the following information related to common and preferred shares during the year:

Common shares outstanding, 1/1 700,000
Common shares repurchased, 3/31 20,000
Conversion of preferred shares, 6/30 40,000
Common shares repurchased, 12/1 36,000

Chape reported net income of $2,000,000 at December 31. What amount of shares should Chape use as the denominator in the computation of basic earnings per share?

702,000

740,000

700,000

684,000

Answer 80

702,000

Question 81

Based on the stock transactions below, what is the weighted-average number of shares outstanding as of December 31, year 1, that should be used in the calculation of basic earnings per share in financial statements issued on March 1, year 2?

Date Transactions
January 1, year 1 Beginning balance 100,000
April 1, year 1 Issued 30,000 shares for cash
June 1, year 1 50% stock dividend
February 15, year 2 2-for-1 stock split
March 15, year 2 Issued 40,000 shares for cash

367,500

147,500

295,000

183,750

Answer 81

367,500

Earnings per share (EPS) is a comparison of the earnings applicable to common stock with the number of shares of common stock of that enterprise.

Basic EPS is based on the weighted-average number of actual common shares (WACS) outstanding during the period. In computing WACS, retroactive application is given to stock splits and stock dividends. WACS is computed as follows:

1/1 100,000 × 1.5 × 12/12 = 150,000
4/1 30,000 × 1.5 × 9/12 = 33,750
183,750
Effect of retroactive split x 2
367,500

Question 82

Which SEC document provides instructions for filing the nonfinancial statement forms required under the Securities Act of 1933?

Regulation S-X

Regulation S-K

Regulation 10-K-I (Instructions)

SEC Form Guide

Answer 82

Regulation S-K

Regulation S-K contains the instructions for filing the nonfinancial statement forms required by the SEC.

Regulation S-X contains information regarding the financial statements that must be submitted to the SEC. There are no such documents as the “SEC Form Guide” or “Regulation 10-K-I (Instructions).”

Question 83

Securities of a subsidiary that are convertible into parent company’s stock shall be considered:

potential common shares of the parent to the extent that they are converted.

potential common shares of the parent to the extent that they are likely to be converted.

potential common shares of the parent for consolidated diluted EPS.

not parent company shares for purposes of diluted EPS.

Answer 83

potential common shares of the parent for consolidated diluted EPS.

Securities of a subsidiary that are convertible into parent company’s common stock are potential common shares for diluted EPS.

Question 84

On January 1 of the current year, a corporation had 10,000 shares of common stock outstanding. On March 30, the corporation issued 4,000 more shares of stock. There were no other changes in the number of shares outstanding. What is the weighted-average number of shares that should be used to calculate basic earnings per share?

10,000

13,000

12,000

14,000

Answer 84

13,000

The computation of the weighted-average number of shares takes into consideration the portion of the period (i.e., the number of months in the year) that the common shares were outstanding, as follows:

Number of Shares__Months Outstanding__Weighted Average
10,000 shares 12/12 (12 months) 10,000
4,000 shares 9/12 (9 months) 3,000
Weighted-average number of shares 13,000

Question 85

Which of the following is not one of the areas for which FASB ASC 280-10-50-30 on segment reporting requires reconciliation of reportable segment information to consolidated enterprise information?

Revenues

Assets

Profit or loss

Current liabilities

Answer 85

Current liabilities

FASB ASC 280-10-50-30 specifically requires that an entity disclose for each reportable segment total assets, revenues, and a measure of profit or loss. There are also other items that must be disclosed for each reportable segment, but there is no mention about any requirement to disclose the amount of current liabilities for those segments.

Question 86

The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton’s income statement for the current fiscal year.

While reviewing the income statement, Carlton’s finance director noticed that the earnings per share data has been omitted. What changes will have to be made to Carlton’s income statement as a result of the omission of the earnings per share data?

No changes will have to be made to Carlton’s income statement. The income statement is complete without the earnings per share data.

Carlton’s income statement will only have to be revised to include the earnings per share data if Carlton’s net income for the past two years was greater than $5,000,000.

Carlton’s income statement will have to be revised to include the earnings per share data.

Carlton’s income statement will only have to be revised to include the earnings per share data if Carlton’s market capitalization is greater than $5,000,000.

Answer 86

Carlton’s income statement will have to be revised to include the earnings per share data.

FASB ASC 260 requires that earnings per share be presented on the face of the income statement of publicly held enterprises.

Question 87

od Co.’s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated?

The current-year dividends and the dividends in arrears on the cumulative preferred stock should be added to the net loss, but the dividends on the noncumulative preferred stock should not be included in the calculation.

The dividends on the noncumulative preferred stock should be added to the net loss, but the current-year dividends and the dividends in arrears on the cumulative preferred stock should not be included in the calculation.

The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.

Neither the dividends on the noncumulative preferred stock nor the current-year dividends and the dividends in arrears on cumulative preferred stock should be included in the calculation.

Answer 87

The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.

In determining basic earnings per share, cumulative preferred dividends reduce the amount available for common shareholders. Consequently, net income should be reduced or net loss increased for the amount of the cumulative dividend.

Question 88

Which of the following entities requires the filing of the Form 10-K?

AICPA

SEC

PCAOB

IRS

Answer 88

SEC

Under federal securities laws, publicly traded companies are required to file forms with the SEC periodically. The forms are available to anyone using the EDGAR database at www.sec.gov. The most common forms are the 10-K and the 10-Q. These forms must be filed electronically on EDGAR unless this filing causes hardship on the filing company.

Form 10-K is the required annual report. It provides a comprehensive report of a company’s business and financial condition, including audited financial statements.

Question 89

In computing the weighted-average number of shares outstanding during the year, which of the following mid-year events must be treated as if it had occurred at the beginning of the year?

Sale of additional common stock

Declaration and distribution of stock dividend

Sale of preferred convertible stock

Purchase of treasury stock

Answer 89

Declaration and distribution of stock dividend

Changes in net assets can cause changes in earnings. Stock dividends and stock splits do not change the net assets of an entity and cannot cause changes in earnings. They merely change the amount of shares outstanding.

In order to maintain a consistent measure of the net assets affecting earnings, stock dividends and splits must be treated as if they had occurred at the beginning of the year.

Question 90

The definition of a smaller reporting company with respect to market value, as established by the U.S. Securities and Exchange Commission, includes companies with less than exactly what amount in public equity float?

$75 million

$100 million

$150 million

$125 million

Answer 90

$75 million

There are three categories for filers with the SEC. Entities with market values exceeding $700,000,000 are classified as large accelerated filers; entities with market values between $75,000,000 and $700,000,000 (and at least $100 million in annual revenues) are accelerated filers; and entities with market value below $75,000,000 and/or annual revenues less than $100,000,000 are non-accelerated (or small) filers. Each category has different filing requirements and deadlines.

Question 91

The per-share amount must be reported on the face of a public company’s income statement for which of the following items?

Income from continuing operations

Compensation effect of fair value on stock options

Preferred stock dividend

U.S. Treasury stock

Answer 91

Income from continuing operations

EPS, or earnings per share, (if applicable, both basic EPS and diluted EPS) must be presented on the face of the income statement for Income from Continuing Operations and Net Income. EPS for discontinued operations may be disclosed either on the face of the income statement or in the notes.

EPS is not required for preferred stock dividends, U.S. Treasury stock, or for the compensation effect of fair value on stock options.

Question 92

Income captions for which EPS are presented

Earnings per share (if applicable, both basic EPS and diluted EPS) must be presented on the face of the income statement for each of the following income captions if they appear on the income statement:

a. Income from continuing operations
b. Net income