ACCT Ch.15 HW

Question 1

The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.

If each share of preferred stock is convertible into 8 shares of common stock, the diluted earnings per share for 2018 is (rounded):

Answer 1

$1.45 per share

Question 2

The denominator used in the calculation of basic earnings per share is the:

Answer 2

weighted average number of common shares outstanding during the year.

Question 3

The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.

The basic earnings per share for 2018 is:

Answer 3

$1.54 per share

Question 4

According to current GAAP, the date when the terms for stock options are mutually agreed-upon and the stock options are awarded to employees is the:

Answer 4

grant date

Question 5

When a dividend is not declared on preferred stock, and the common share­holders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is:

Answer 5

cumulative

Question 6

Which item does not properly describe the par value of common stock?

• A stock’s par value does not necessarily have any relationship with a stock’s market value.
• The par value of common stock is set by the state government.
• Par value is an assigned amount (such as $1 per share) used to compute the dol­lar accounting value of the common shares on the company’s balance sheet.
• Par value refers to the nominal value or face value of a security.

Answer 6

The par value of common stock is set by the state government.

Question 7

Cash dividends paid by a corporation:

• are an expense of the corporation that declared the dividend.
• reduce the net income of the corporation that declared the dividend.
• reduce the retained earnings of the corporation that declared the dividend.
• reduce the retained earnings of the corporation that declared the dividend because net income is reduced by the amount of the dividend.

Answer 7

reduce the retained earnings of the corporation that declared the dividend.

Question 8

Tam Company’s net income for the year ending December 31, 2017, was $10,000. During the year, Tam declared and paid $1,000 cash dividends on preferred stock and $1,750 cash dividends on common stock. At December 31, 2017, the company had 12,000 shares of common stock issued and outstanding—10,000 had been issued and outstanding throughout the year and 2,000 were issued on July 1, 2017. No other common stock transactions occurred during the year, and the 5,000 shares of preferred stock are not convertible into common shares.

What should be the 2017 earnings per common share of Tam Company?

Answer 8

$0.82 per share

Question 9

Companies with surplus cash will consider the needs of cash for what 3 things?

Answer 9

• buying back shares of their company stock.
• acquiring another company.
• issuing a special dividend to shareholders.

Question 10

Stock options are granted to the employees of Young Company on March 10, 2018. The employees must wait until March 10, 2022 to exercise the options. The four-year waiting period is the:

Answer 10

vesting period

Question 11

Which of the following is not a reason companies use stock options as a form of employee compensation?

• As a means of attracting talented employees while attempting to conserve cash.
• To ensure compliance with laws governing executive compensation.
• To align employee’s interests with the interest of the owners.
• To provide tax savings.

Answer 11

To ensure compliance with laws governing executive compensation.

Question 12

Vent, Inc. reported net income of $770,000 for 2018. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.

The basic earnings per share for 2018 is (rounded)

Answer 12

$3.94 per share

Question 13

Vent, Inc. reported net income of $770,000 for 2018. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.

The weighted average number of common shares used to compute earnings per share for 2018 is:

Answer 13

160,000

Question 14

The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.

The weighted average number of common shares used to compute earnings per share for 2018 is:

Answer 14

102,500