Ch 14 Corporations: Additional Topics & IFRS

Question 1

accumulated other comprehensive income

Answer 1

The cumulative amount of other comprehensive income and losses over the life of the company reported as a separate amount in shareholders’ equity. (p. 740)

Question 2

basic earnings per share

Answer 2

The profit (or loss) earned by each common share. It is calculated by subtracting any preferred dividends declared from profit and dividing the result by the weighted average number of common shares. (p. 750)

Question 3

change in an accounting estimate

Answer 3

A change in an accounting estimate because of a change in circumstances or because new information about the estimate is available that indicates that the estimate needs to be changed. (p. 742)

Question 4

change in an accounting policy

Answer 4

The use of a generally accepted accounting policy in the current year that is different from the one used in the preceding year. (p. 742)

Question 5

component of an entity

Answer 5

A separate major line of business or geographic areas of operations. (p. 737)

Question 6

comprehensive income

Answer 6

All changes in shareholders’ equity during a period except for changes resulting from the sale or repurchase of shares, or from the payment of dividends. (p. 739)

Question 7

continuing operations

Answer 7

The revenues, expenses, and profit or loss generated from a company’s ongoing activities. (p. 737)

Question 8

discontinued operations

Answer 8

A component of an enterprise that has been disposed of or is reclassified as “held for sale.” (p. 737)

Question 9

distribution date

Answer 9

The date when stock dividends are distributed to shareholders. (p. 731)

Question 10

earnings per share (EPS)

Answer 10

The profit (or loss) earned by each common share. (p. 748)

Question 11

fully diluted earnings per share

Answer 11

Earnings per share adjusted for the maximum possible dilution that would occur if securities were converted, or changed, into common shares. (p. 750)

Question 12

intraperiod tax allocation

Answer 12

The procedure of associating income tax expense with the specific item that directly affects the income tax for the period. (p. 738)

Question 13

other comprehensive income (loss)

Answer 13

Gains and losses that are not included in profit but affect shareholders’ equity. (p. 739)

Question 14

payout ratio

Answer 14

A ratio that measures the percentage of income distributed as cash dividends. It is calculated by dividing cash dividends by profit. (p. 750)

Question 15

price-earnings (PE) ratio

Answer 15

The ratio of the price of a common share to earnings per common share. (p. 750)

Question 16

prior period error

Answer 16

A material error made in a revenue or expense account in a prior year that misstated that year’s profit. (p. 742)

Question 17

prospective application

Answer 17

An approach used for changes in accounting estimates that recognizes the effect of the change in the estimate in the current and future periods only. (p. 742)

Question 18

retrospective application

Answer 18

An approach used for changes in accounting policies that requires the new policy to be applied as if that policy had always been in use. (p. 742)

Question 19

retrospective restatement

Answer 19

An approach used when correcting prior period errors that requires the corrections be made to the recognition, measurement, and disclosure of elements of the financial statements as if the error had never occurred. (p. 742)

Question 20

reverse stock split

Answer 20

A decrease in the number of shares issued. A 1-for-3 reverse stock split would reduce the amount of shares owned by a shareholder to one for every three shares owned before the split. (p. 732)

Question 21

statement of changes in shareholders’ equity

Answer 21

A statement that reports all increases and decreases to shareholders’ equity during a period. (p. 744)

Question 22

statement of comprehensive income

Answer 22

A statement that reports all items included in comprehensive income during a period. (p. 739)

Question 23

stock dividend

Answer 23

A pro rata distribution of the corporation’s own shares to shareholders. (p. 730)

Question 24

stock split

Answer 24

The issue of additional shares to shareholders according to their percentage ownership. A 2-for-1 stock split means that two new shares are issued in exchange for one old share. No journal entries are required for a stock split. (p. 731)

Question 25

treasury shares

Answer 25

A corporation’s own shares that have been reacquired and not yet retired or cancelled. They are held in “treasury” for later reissue or cancellation. (p. 734)

Question 26

weighted average number of common shares

Answer 26

The number of common shares issued during the year, with any shares purchased or issued during the year weighted by the fraction of the year that they have been outstanding. (p. 749)