Quiz2 IA Flashcards
Throughout 1998, J Co. had 10,000 ordinary shares outstanding. There was no potential dilution of earnings per share except as follows:
In 20x7, J Co. agreed to issue 2,000 additional shares of its stock to the former stockholders of an acquired company if the acquired company’s earnings for any of the five years 20x8 through 2x12 exceeded ₱5,000.
Results of operations for 20x8 were:
Profit of J Co₱10,000
Profit of acquired company4,000
Consolidated profit₱14,000
Diluted earnings per share for 1998 on a consolidated basis would be
a. ₱14,000 ÷ 10,000 = ₱1.40
b. ₱14,000 ÷ 12,000 = ₱1.17
c. ₱15,000 ÷ 10,000 = ₱1.50
d. ₱15,000 ÷ 12,000 = ₱1.25
a. ₱14,000 ÷ 10,000 = ₱1.40
Information relating to the capital structure of the Galaxy Company is as follows:
Outstanding shares of:
Dec. 31, 20x5
Dec. 31, 20x6
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Ordinary shares
90,000
90,000
Convertible preference shares
10,000
10,000
9% convertible bonds
1,000,000
1,000,000
During 20x6 Galaxy paid dividends of ₱6.00 per share on its preference shares. The preference share is convertible into 10,000 ordinary shares. The 9% convertible bonds are convertible into 30,000 ordinary shares. The profit for the year ended December 31, 20x6, is ₱485,000. The income tax rate is 50%. What should be the diluted earnings per share for the year ended December 31, 20x6?
a. 3.79
b. 3.92
c. 4.08
d. 4.72
b. 3.92
Jones Corp.’s capital structure was as follows: December 31
Outstanding shares of stock:
20x5
20x4
Ordinary
110,000
110,000
Convertible preference shares
10,000
10,000
8% convertible bonds
1,000,000
1,000,000
During 20x5, Jones paid dividends of ₱3.00 per share on its preference shares. The preference shares are convertible into 20,000 ordinary shares. The 8% bonds are convertible into 30,000 ordinary shares. Profit for 20x5 is ₱850,000. The income tax rate is 30%. The diluted earnings per share for 20x5 is
a. 5.48
b. 5.66
c. 5.81
d. 6.26
b. 5.66
The 20x7 profit of Mack Co. was ₱100,000, and 100,000 shares of its common stock were outstanding during the entire year. In addition, there were outstanding options to purchase 10,000 shares of common stock at ₱10 per share. These options were granted in 20x5 and none had been exercised by December 31, 20x7. Market prices of Mack’s common stock during 20x7 were:
January 1 ₱20 per share
December 31 ₱40 per share
Average price ₱25 per share
The amount which should be shown as Mack’s diluted earnings per share for 20x7 is (rounded to the nearest cent)
a. ₱100,000 ÷ 110,000 shares = ₱.91
b. ₱100,000 ÷ 105,000 shares = ₱.95
c. ₱100,000 ÷ 106,000 shares = ₱.94
d. ₱100,000 ÷ 107,500 shares = ₱.93
c. ₱100,000 ÷ 106,000 shares = ₱.94
On January 1, 20x6, Hage Corporation granted options to purchase 9,000 of its ordinary shares at ₱7 each. The market price was ₱10.50 per ordinary share on March 31, 20x6, and averaged ₱9 per share during the quarter then ended. There was no change in the 50,000 shares of outstanding common stock during the quarter ended March 31, 20x6. Profit for the quarter was ₱8,268. The number of shares to be used in computing diluted earnings per share for the quarter is
a. 59,000
b. 50,000
c. 53,000
d. 52,000
d. 52,000
In applying the treasury stock method of computing diluted earnings per share, when is it appropriate to use the average market price of common stock during the year as the assumed repurchase price?
a. Always
b. Never
c. When the average market price is higher than the exercise price
d. When the average market price is lower than the exercise price
c. When the average market price is higher than the exercise price
Of the following, select the incorrect statement concerning earnings per share.
a. During periods when all income is paid out as dividends, earnings per share and dividends per share under a simple capital structure would be identical.
b. Under a simple capital structure, no adjustment to shares outstanding is necessary for a stock split on the last day of the fiscal period.
c. During a period, changes in stock issued or reacquired by a company may affect earnings per share.
d. During a loss period, the amount of loss attributed to each share of common stock should be computed.
b. Under a simple capital structure, no adjustment to shares outstanding is necessary for a stock split on the last day of the fiscal period.
When computing diluted earnings per share, stock options are
a. recognized only if they are dilutive.
b. recognized only if they are antidilutive.
c. recognized only if they were exercised.
d. ignored.
a. recognized only if they are dilutive.
The EPS computation that is forward-looking and based on assumptions about future transactions is
a. diluted EPS.
b. basic EPS.
c. continuing operations EPS.
d. extraordinary EPS.
a. diluted EPS.
What is the correct treatment of a stock dividend issued in mid-year when computing the weighted-average number of common shares outstanding for earnings per share purposes?
a. The stock dividend should be weighted by the length of time that the additional number of shares are outstanding during the period.
b. The stock dividend should be included in the weighted-average number of common shares outstanding only if the additional shares result in a decrease of 3 percent or more in earnings per share.
c. The stock dividend should be weighted as if the additional shares were issued at the beginning of the year.
d. The stock dividend should be ignored since no additional capital was received.
c. The stock dividend should be weighted as if the additional shares were issued at the beginning of the year.
- Maga Corp.’s shareholders’ equity at December 31, 20x1, comprised the following:
6% cumulative preference share, ₱100 par; liquidating value ₱110
per share; authorized, issued, and outstanding 50,000 shares 5,000,000
Ordinary share, ₱5 par; 1,000,000 shares authorized; issued
and outstanding 400,000 shares 2,000,000
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Retained earnings 1,000,000
Dividends on preferred stock have been paid through 20x0 but have not been declared for 20x1. At December 31, 20x1, Maga’s book value per ordinary share was
a. 5.50
b. 6.25
c. 6.75
d. 7.50
a. 5.50
Hoyt Corp.’s current balance sheet reports the following stockholders’ equity:
5% cumulative preference shares, ₱100 par value
250,000
Ordinary share, par value ₱3.50 per share
350,000
Share premium on ordinary shares
125,000
Retained earnings
300,000
Dividends in arrears on the preference share amount to ₱25,000. If Hoyt were to be liquidated, the preference stockholders would receive par value plus a premium of ₱50,000. The book value per ordinary share is
a. 7.75
b. 7.50
c. 7.25
d. 7.00
d. 7.00
- Georgia, Inc. has an authorized capital of 1,000, ₱100 par, 8% cumulative preference shares and 100,000, ₱10 par, ordinary shares. The equity account balances at December 31, 20x1, are as follows:
Cumulative preference share
50,000
Ordinary share
90,000
Share premium
9,000
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Retained earnings
13,000
Treasury shares, ordinary – 100 shares at cost
(2,000)
Total
160,000
Dividends on preferred stock are in arrears for the year 20x1. The book value per ordinary share at December 31, 20x1, should be
a. 11.78
b. 11.91
c. 12.22
d. 12.36
b. 11.91
Nova Corporation has an authorized capital of 10,000 shares of ₱100 par, 8% cumulative preferred stock and 20,000 shares of ₱100 par common stock. The equity account balances at December 31, 2008 are as follows:
Cumulative preferred stock
500,000
Common stock
1,100,000
Additional paid in capital
200,000
Retained earnings
260,000
Treasury stock, common-1,000 shares at cost
(150,000)
Total shareholders’ equity
1,910,000
Dividends on preferred stock are in arrears for 2007 and 2008. The book value of a share of common stock at December 31, 2008 should be
a. 125
b. 191
c. 133
d. 141
c. 133
Boe Corporation’s stockholders’ equity at December 31, 2008 was as follows:
6% noncumulative preference shares, ₱100 par (liquidation value ₱105 per share)
1,000,000
Ordinary shares, ₱100 par
3,000,000
Retained earnings
950,000
Preferred dividends have been paid up to December 31, 2008.
At December 31, 2008, Boe’s book value per common share was
a.131.70
b.130.00
c.129.70
d.128.00
b.130.00
