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CPA FAR Equity, Stockholders, Earnings Per Share
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CPA FAR Equity covers stockholders' equity (common/preferred stock, retained earnings, treasury stock) and Earnings Per Share (EPS), focusing on capital structure, dividend, and share transactions.  Key topics include calculating basic EPS [(Net Income−Preferred Dividends)/Weighted Average Shares Outstanding], and diluted EPS, accounting for treasury stock (cost/par method), and stock dividends/splits.  Stockholders' Equity Components Common Stock: Reported at par value. Preferred Stock: Cumulative dividends are deducted from net income in EPS, regardless of declaration. Non-cumulative... Show more
CPA FAR Equity, Stockholders, Earnings Per Share
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25 Questions

1. A company can report basic EPS and not have to report diluted EPS if it has:
I. common stock outstanding, no preferred stock, and options that are convertible into common stock
II. common stock outstanding, no preferred stock, and bonds that are convertible into common stock
2. When accounting for the expense related to compensatory stock options, which of the following is decreased?
I. Net income
II. Retained earnings
III. Total stockholders’ equity
3. With regard to dividends, which of the following result in a reduction of retained earnings at the date of declaration?
I. Cash dividends
II. Property dividends
4. Debt that was converted into common shares during the period would be included in the denominator to calculate weighted average common shares outstanding for the computation of:
I. basic EPS
II. diluted EPS
5. When accounting for compensatory stock options, when the employees exercise their options and purchase the shares for an amount above par but below the market price, the journal entry will include a:
6. When calculating the weighted average number of shares outstanding during the period, which of the following is treated as if it were outstanding since the beginning of the year?
I. Stock dividends declared in July and paid in September
II. Stock issued above par in August
7. Total current liabilities is used as the denominator in which of the following ratios?
I. Current ratio
II. Quick ratio
8. A company has common stock with a $10 par value and fair market value of $15. The company exchanges 1,000 shares of this common stock for an acre of land.
I. The land will be debited for $10,000.
II. The common stock account will be credited for $10,000 and no additional paid-in capital will be recorded.
9. Which of the following is correct regarding a net loss for the period as it related to net income available to the common shareholders, the numerator of the EPS calculation?
I. In the event of a net loss for the period, declared dividends on noncumulative preferred stock are added to the net loss even if the dividend was not paid.
II. In the event of a net loss for the period, current year dividends on cumulative preferred stock are added to the net loss regardless of whether the dividends have been declared.
10. According to US generally accepted accounting principles (GAAP), which of the following entities are NOT required to present earnings per share (EPS) on the face of the income statement?
I. Private entities that have yet to go public or make a filing for a public offering
II. Entities whose shares are traded on a US securities exchange
11. Which of the following is correct regarding a bond sinking fund?
I. Sinking fund accounts that are considered to offset current bond liabilities can be included within current assets.
II. A bond sinking fund is an example of an appropriation of retained earnings.
12. If a current liability is expected to be refinanced on a long-term basis, the liability may be reclassified as long term on the balance sheet under which of the following standards?
I. US GAAP
II. IFRS
13. With regard to a 5-year $1,000 bond issued at 102 on January 1, Year 10, that pays interest semiannually on June 30 and December 31, the stated interest rate of 8% is used to calculate the:
14. Under US GAAP, how much additional paid-in capital is recorded by Stefano Inc. on January 14?
15. A corporation has common stock with a $10 par value. A new share of this stock is issued for $13 to an investor. Which of the following is correct?
I. The company will debit common stock for the par value of $10.
II. The company will debit cash for $13 and credit gain on sale of stock for $3 if the purchaser of the stock was already a stockholder and is simply buying additional shares.
16. When calculating basic EPS, which of the following is correct regarding the calculation of weighted average common shares outstanding?
I. Include the convertible preferred shares that were converted during the period in the calculation of weighted average common shares outstanding, and time-weight them.
II. Ignore convertible preferred shares unless they are converted.
17. How do dividends in arrears from Year 1 relate to a Year 2 basic EPS calculation when attempting to compute net income available to common shareholders?
I. Year 1 dividends in arrears are subtracted from Year 2 net income along with Year 2 unpaid dividends if the preferred stock is cumulative.
II. Year 1 dividends in arrears are added to a Year 2 net loss if the preferred stock is cumulative.
18. For purposes of calculating basic EPS, income available to common shareholders is determined by:
I. deducting dividends declared in the period on noncumulative preferred stock (regardless of whether they have been paid)
II. deducting dividends accumulated in the period on cumulative preferred stock (regardless of whether they have been declared)
19. With regard to dividends paid from one corporation to another, retained earnings of the corporation paying the dividend is debited on which of the following dates?
20. Which is correct regarding cumulative preferred stock?
I. Cumulative means that if the preferred stock dividend is not declared, it will have to be paid before holders of common stock can receive any dividend payment.
II. The issuing company reports a liability on the balance sheet for the dividends that are in arrears.
21. A company was organized in January, Year 6, with authorized capital of $10 par value common stock. On February 1, Year 6, 2 shares were issued at par for cash. On March 1, Year 6, the company’s attorney accepted 5,000 shares of the common stock in settlement for legal services with a fair value of $60,000. Additional paid-in capital would increase on:
I. February 1, Year 6
II. March 1, Year 6
22. Which of the following is correct regarding convertible bonds at issuance?
I. Under US GAAP, no value is assigned to the conversion feature.
II. Under the IFRS, both a liability and an equity component should be recognized when the bonds are issued.
23. Losses due to write-downs of assets under a quasi-reorganization would affect which of the following under US GAAP?
I. Retained earnings
II. Income statement
24. Which is correct regarding the rights of common and preferred stockholders?
I. Preferred stock has no set rights; the rights must be defined in the stock certificate.
II. All common stocks issued by companies incorporated within a state typically will have the same legal rights because they are established by the laws of that state.
25. Under a compensatory stock option plan, the expense to the corporation is:

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