Fundamental Accounting Principles, 15th Edition Test Bank by Kermit Larson, Jenson A+

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Fundamental Accounting Principles, 15th Edition Test Bank by Kermit Larson, Jenson A+

Name: Fundamental Accounting Principles, 15th Edition Test Bank by Kermit Larson, Jenson A+
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SKU: Fundamental Accounting Principles, 15th Edition Test Bank by Kermit Larson, Jenson A+

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Chapter 14

Student: ___________________________________________________________________________

1.	A cash dividend does not reduce a corporation’s assets or equity, while a share dividend reduces both. True False

2.	A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements or it is required by IFRS. True False

3.	If a company’s activities include operations that are being discontinued, the income or loss effects of the discontinued operations are included on the income statement in income from continuing operations. True False

4.	The statement of comprehensive income is a detailed statement of net income plus or minus any other comprehensive income items. True False

5.	A share dividend is a corporation’s distribution of its own shares to its shareholders without receiving any payment in return. True False

6.	A share dividend reduces a corporation’s assets and equity. True False

7.	A share dividend reduces the number of previously outstanding shares. True False

8.	A share dividend increases the number of previously outstanding shares. True False

9.	A share dividend capitalizes retained earnings because it decreases a company’s contributed capital. True False

10.	A share split decreases the market price of the company shares. True False

11.	A share dividend is a distribution of corporate assets as a dividend that returns part of the original investment to shareholders. True False

12.	The journal entry to record $10,000 in a share dividend on the declaration date can include a debit to cash dividends declared and a credit to dividends payable. True False

13.	The journal entry to record $25,000 market value in share dividends on the date of declaration can be a debit to share dividends and a credit to common share dividends distributable. True False

14.	A share split is the distribution of additional shares to shareholders according to their percent of ownership. True False

15.	A share split affects total equity as reported on the balance sheet. True False

16.	A reverse share split reduces the market value of shares and the par value per share. True False

17.	A share dividend is not a liability on the balance sheet because it does not require a distribution of assets. True False

18.	A 10% share dividend increases the number of outstanding shares. True False

19.	Share dividends are recorded at market value. True False

20.	Earnings per share is the amount of income earned by each share of a company’s outstanding common shares. True False

21.	Earnings per share is calculated by dividing the number of common shares outstanding by net income. True False

22.	The cumulative effect of changing accounting principles is only reported for the year of the change. True False

23.	Retained earnings are part of the shareholders’ claim on the company’s net assets. True False

24.	Changes in accounting estimates are treated as accounting errors. True False

25.	Restricted retained earnings must be disclosed on the balance sheet or the statement of changes in equity, or in the notes to the financial statements. True False

26.	Changes in accounting estimates are applied in determining expenses for the current and future periods. True False

27.

After using an expected useful life of seven years and no residual value to depreciate its machine over the preceding two years, a company decided early this year that the machine would last only three more years. The change in accounting estimate results in an adjustment to ending retained earnings for the prior period with no impact on any future periods.

True False

28.	The purchase of treasury shares for cash reduces the corporation’s assets and equity by equal amounts. True False

29.	The Treasury Shares account is a contra equity account. True False

30.	Treasury shares are shares that have been authorized, issued, and are outstanding. True False

31.	Purchasing treasury shares reduces retained earnings. True False

32.	As part of the year-end closing process the Share Dividends account is closed to Retained Earnings. True False

33.	If a company resells treasury shares below the acquisition cost, then it must report a loss from the sale of treasury shares. True False

34.	Company purchases and retirements of treasury shares are made at a company’s discretion. True False

35.	The Contributed Capital, Treasury Shares account can have a zero or credit balance, but it cannot have a debit balance. True False

36.

An expanded income statement for a corporation with discontinued operations includes information on:

A.	Continuing operations.

B.	Discontinued operations.

C.	Earnings per share.

D.	Net income.

E.	All of these answers are correct.

37.

Reporting for discontinued operations includes:

A.	Income or loss from operating the discontinued segment (net of tax).

B.	Gain or loss from disposal of the segment’s net assets (net of tax).

C.	Income or loss from operating the discontinued operations (net of tax) and gain or loss from disposal of the operation’s net assets (net of tax).

D.	Tax benefits of the discontinued segment.

E.	All of these answers are correct.

38.

Item(s) that would be included in other comprehensive income include:

A.	Unrealized gains (losses) on held for trading investments.

B.	Unrealized gains (losses) on available-for-sale investments.

C.	Unrealized gains (losses) on held to maturity investments.

D.	Unrealized gains (losses) on discontinued operation.

E.	Net income.

39.

North American Construction Corp. has three lines of business including surveying, excavating and planning. These product lines are considered to be:

A.	Other comprehensive income.

B.	Discontinued operations.

C.	Operating segments.

D.	Contributed capital.

E.	All of these answers are correct.

40.

A corporation’s distribution of its own shares to its shareholders without receiving any payment in return is a:

A.	Premium on shares.

B.	Share subscription.

C.	Share dividend.

D.	Discount on shares.

E.	Preferred share.

41.

A share dividend:

A.	Is a distribution of additional shares to its shareholders without receiving any payment.

B.	Transfers a portion of equity from retained earnings to contributed capital.

C.	Is often referred to as a stock dividend.

D.	Does not reduce a corporation’s assets and equity.

E.	All of these answers are correct.

42.

Companies use share dividends:

A.	To keep the market price of the shares affordable.

B.	To increase the market value of shares.

C.	To increase contributed capital.

D.	To raise capital for the company for future expansion.

E.	All of these answers are correct.

43.

A share dividend transfers:

A.	Contributed capital to retained earnings.

B.	Contributed capital to assets.

C.	Retained earnings to assets.

D.	Retained earnings to contributed capital.

E.	Assets to contributed capital.

44.

McJunkin Ltd. declares a 10% share dividend on December 31, 2015. Currently McJunkin has 30,000 shares outstanding. The market value of the shares on the date of declaration is $3 per share. The value to be assigned to this share dividend is:

$5,000.

$8,000.

$2,000.

$6,000.

$9,000.

45.

The act of a corporation to call in its shares and issue one new share in the place of more than one share previously outstanding is a:

A.	Share dividend.

B.	Reverse share split.

C.	Liquidating dividend.

D.	Share split.

E.	Cash dividend.

46.

When a corporation calls in its outstanding shares and issues more than one new share in exchange for each old share, this is a:

A.	Share split.

B.	Share dividend.

C.	Cash dividend.

D.	Reverse share split.

E.	Liquidating dividend.

47.

Failure to record the declaration and distribution of a share dividend would:

A.	Have no effect on total equity.

B.	Cause the outstanding shares to exceed the equity.

C.	Cause an understatement of equity.

D.	Cause an overstatement of equity.

E.	Cause the balance sheet to be out of balance.

48.

Just before Amigone Funeral Homes Inc. issued a 10% share dividend on November 1, the following data were collected:

The amount that total equity will increase (decrease) as a result of recording the share dividend is:

$7,500.

$(9,000).

$22,500.

D.	$(27,000).

$-0-.

49.

On July 1, Stubbs Corporation had 100,000 no-par-value common shares outstanding. On this day the board of directors declared a 10% share dividend. The fair market value of each share was $13. A possible entry to record this dividend is:

50.

The amount of income earned by each outstanding common share of a corporation is known as:

A.	Restricted retained earnings.

B.	Income from continuing operations.

C.	Earnings per share.

D.	Dividends payable.

E.	A share dividend.

51.

The financial statement impact for a company that desires to make a change in accounting policy include(s):

A.	Retrospective restatement of prior period financial statements.

B.	Financial impact charged or credited (net of tax) to the opening balance of retained earnings.

C.	The nature and justification for the change.

D.	The effect of the change on current year net income.

E.	All of these answers are correct.

52.

A change from moving weighted average to FIFO reporting is:

A.	A change that results in a discontinued operation.

B.	A change in accounting principle and is allowed if it improves the usefulness of information in the financial statements.

C.	Not allowed once an inventory costing method has been chosen.

D.	Allowed if it improves the usefulness of information in the financial statements.

E.	A change in accounting principle and is not allowed even if it improves the usefulness of information in the financial statements.

53.

Retained earnings:

A.	Are the cumulative net profits or losses minus dividends paid since the date of incorporation.

B.	Are part of the income statement.

C.	Represent an amount of cash available to pay shareholders.

D.	Are the cumulative net profits or losses minus dividends paid since the date of incorporation, and are part of shareholders’ equity.

E.	All of these answers are correct.

54.

Retrospective restatement of financial statements can result from:

A.	Changes in estimates.

B.	Changes in accounting policies.

C.	Errors in the current income statements.

D.	Changes in tax law.

E.	Contributed capital.

55.

Changes in accounting estimates are:

A.	Considered to be accounting errors.

B.	Reported by retrospective restatement of financial statements.

C.	Accounted for with a cumulative “catch-up” adjustment.

D.	Considered to be a change in accounting policy.

E.	Accounted for in the period of the change and future periods.

56.

Restrictions on retained earnings can be:

A.	Limits that identify how much of the retained earnings balance is not available for dividends or the repurchase of shares

B.	Statutory limits set by government.

C.	Due to loan agreements.

D.	Set by a corporation’s directors in order to limit dividends and maintain cash.

E.	All of these answers are correct.

57.

A change in accounting policy will be presented on the:

A.	Income Statement.

B.	Balance Sheet.

C.	Cash Flow Statement.

D.	Statement of Changes in Equity.

E.	All of these answers are correct.

58.

Which of the following is true about treasury shares?

A.	Treasury shares are held by shareholders.

B.	Treasury shares increase retained earnings.

C.	Treasury shares increase the number of common shares outstanding.

D.	If treasury shares are sold for more than cost, this results in a gain for the company.

E.	Treasury Shares are reported as a separate item in the equity section of the balance sheet.

59.

Shares that are reacquired and are not cancelled by the issuing corporation are called:

A.	Capital shares.

B.	Treasury shares.

C.	Redeemed shares.

D.	Preferred shares.

E.	Callable shares.

60.

Treasury shares are recorded as a(n):

Asset.

B.	Contra asset.

Equity.

D.	Contra equity.

E.	Liability.

61.

The following data were obtained from Cook the Books Accounting Inc.:

The number of outstanding shares is:

12,000.

18,000.

17,000.

23,000.

15,000.

62.

Retirement of shares:

A.	Reduces the number of issued shares.

B.	Is permissible under law if the interest of the shareholders is not jeopardized.

C.	Is accounted for like treasury shares.

D.	Reduces the number of issued shares and is permissible under law if the interest of the shareholders is not jeopardized.

E.	All of these answers are correct.

63.

Cheatem Lawyers Inc has 9,000 common shares outstanding about which the following data has been collected:

The cost per share of the treasury shares is:

$1.15.

$1.28.

$10.50.

$11.50.

E.	None of these answers is correct.

64.

Argue and Fibbs Lawyer Corporation repurchased 200 shares on June 1, for $10,000, to be kept in the treasury. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the rest of the treasury shares at $49 per share. What is the balance in the Contributed Capital, Treasury Shares account on September 1?

$5,050.

$2,600.

$100.

$50.

$-0-.

65.	Describe share dividends and share splits.

66.	Explain the form and content of an expanded income statement for a corporation with discontinued operations.

67.

Explain where each of the following items should appear in the financial statements of Reid and Right Corp, a publishing company:

(1) After the retirement of the company’s CEO, the company has decided to downsize its operations. This will include the elimination of the children’s book segment of operations.
(2) The company holds 500 shares in Dakota Corp. that originally cost $2,000; the shares now have a market value of $4,000. They are being accounted for as an available-for-sale investment.

68.	Explain how to calculate earnings per share and how it is used for analysis of a company’s financial status.

69.	Given the following information about Rex Carrs Driving School Corporation’s current-year activities, answer the questions listed below: What amounts should be reported on the income statement as:

70.	Hard Wok Cafe Corporation has 100,000 common shares outstanding. The following transactions related to the company’s shares took place during the year: Prepare the journal entries to record the transactions.

71.	The Drain Surgeon Corp’s equity on January 1 was as follows: common shares, unlimited shares authorized, 250,000 shares issued and outstanding; retained earnings, $1,000,000. Prepare journal entries to record the following transactions:

72.

On July 31, Fly by Night Airline Ltd’s equity was:

Also note that on July 31 the market value of Fly by Night Airline’s shares was $15 per share. The directors considered declaring a 10% or 20% share dividend and wanted to know what effect each share dividend would have on total equity. Calculate the balances that should be in the following accounts after a share dividend distribution.

73.

For each of the following independent situations, present the necessary journal entry:

(a) Declared and distributed a 10% share dividend on 500,000 shares of common shares outstanding. Market price per share on this date was $15.
(b) With 250,000 shares of common shares outstanding, declared and distributed a 2 for 1 share split.
(c) Declared and distributed a 30% share dividend on 200,000 shares of common shares outstanding. Market price per share on this date was $14.

74.	The Kids Exchange Corporation issued common shares for $35 each. Two years later, on June 10, 1,000 shares were repurchased and retired at a cost of $25 each. Present the general journal entry to record the June 10 transaction.

75.

Seven Corporation originally issued its common shares at $35 per share.

(1) Prepare a journal entry to record the purchase and retirement of 500 shares if Seven Corporation paid $30 per share. The company has a retained earnings balance of $50,000.
(2) Prepare a journal entry to record the purchase and retirement of 500 shares if Seven Corporation paid $40 per share.

76.	Beta Inc. had the following equity as of December 31, Year 1: The following transactions related to the company’s shares took place during Year 2: Prepare the journal entries to record the Year 2 transactions.

77.	Quantum Corporation had net income of $35,000 and paid preferred dividends of $6,000.. Quantum had 4,000 common shares outstanding. Calculate the earnings per share.

78.	Kriton Corporation had net income of $375,000 and paid preferred dividends of $80,000. Kriton had 50,000 common shares outstanding. Calculate the earnings per share.

79.	Explain the procedure to record the purchase and sale of treasury shares.

80.	A corporation began the year with $550,000 of retained earnings, reported $140,000 net income, declared $45,000 of cash dividends, paid $50,000 in cash dividends, and purchased treasury shares costing $40,000. Calculate the end-of-year balance in retained earnings.

81.	Beta Inc. had the following equity as of December 31, Year 1: The following transactions related to the company’s shares took place during Year 2: Prepare the journal entries to record the Year 2 transactions.

82.

Sampson Corporation’s only treasury share transactions have been as follows: (1) 1,000 common shares were repurchased on June 1, Year 1, for $40,000; (2) On June 1, Year 2, it reissued 500 of these shares at $45 per share; (3) On August 1, Year 2, it reissued the rest of the treasury shares at $38 per share. Calculate the balance in the Contributed Capital, Treasury Share Transactions account on September 1, Year 2.

83.

On January 10, Clampett Corporation purchased 5,000 shares of its own common shares at $78 per share (to be held as treasury shares). On August 4, 1,000 of the treasury shares were sold at $80 per share. No other treasury share transactions have been made by the corporation.
Prepare the journal entries to record the January 10 purchase and the August 4 sale.

84.

Record the following BJ Corp. transactions in general journal form:

(a) Reacquired 8,000 of its own common shares at $60 per share to be held as treasury shares. The shares were originally issued at $15 per share.
(b) Sold 2,000 shares reacquired under part (a) above at $63 per share.
(c) Sold 3,000 shares reacquired under part (a) at $59 per share.
(d) Retired the remaining shares reacquired under part (a).

85.	A(n) __________________ is a part of a company’s operations that serves a particular line of business or class of customers. ________________________________________

86.	A share dividend transfers a portion of a corporation’s equity from retained earnings to _____________________________. ________________________________________

87.	A share dividend is never a(n) ________________ on a balance sheet because it will never reduce _______________. ________________________________________

88.	In 2015, if a company discovers a mistake made in 2013, the company records the adjustment in the year ________. ________________________________________

89.	Treasury shares are shares that have been _____________________ by the corporation. ________________________________________

90.

Match each of the following terms with the appropriate definition.

1. Share dividend	Limits that identify how much of the retained earnings balance is not available for dividends or the repurchase of shares.	____
2. Treasury share	(Net income – Preferred dividends)/Weighted-average common shares outstanding.	____
3. Earnings per share	An act by a corporation to call in its shares and replace each share with more than one new share.	____
4. Share split	A distribution of shares to existing shareholders without receiving any payment in return.	____
5. Reverse share split	Shares that were reacquired and are still held by the issuing corporation.	____
6. Restricted retained earnings	An act by a corporation to call in its shares and replace each share with less than one new share.	____

91.

Match each of the following terms with the appropriate definition.

1. Treasury shares	The amount of income earned by each share of a company’s outstanding common stock.	____
2. Other comprehensive income	Shares that were reacquired and are still held by the issuing corporation.	____
3. Deficit	Occurs when a corporation repurchases and cancels its own shares.	____
4. Retirement of shares	A component of a company’s operations that serves a particular line of business or class of customers and that has assets, activities, and financial results of operations that can be distinguished from other parts of the business.	____
5. Earnings per share	An account that includes gains and losses that are not part of net income but affect equity.	____
6. Share dividend	Corrections to previous estimates or predictions about future events and outcomes, such as residual values and useful lives of operating assets.	____
7. Segment of a business	A distribution of shares to existing shareholders without receiving any payment in return.	____
8. Changes in accounting estimates	Arises when a corporation has a debit balance in retained earnings.	____

92.

Match each of the following terms with the appropriate definition.
Restricted retained earnings Retained earnings that are not available for dividends because of legal or contractual limitations.

1. Share dividend	Corrections to previous estimates or predictions about future events and outcomes, such as residual values and the useful lives of operating assets.	____
2. Changes in accounting estimates	An act by a corporation to call in its shares and replace each share with less than one new share.	____
3. Reverse share split	A corporation’s distribution of its own shares to its shareholders without receiving any payment in return.	____
4. Discontinued operation	When a company with operations in different segments sells a segment.	____

Chapter 14 Key

1.	A cash dividend does not reduce a corporation’s assets or equity, while a share dividend reduces both. FALSE

Difficulty: Easy
Larson – Chapter 14 #1
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

2.	A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements or it is required by IFRS. TRUE

Difficulty: Easy
Larson – Chapter 14 #2
Learning Objective: 14-05 Explain restricted retained earnings and accounting changes.
Type: Knowledge

3.	If a company’s activities include operations that are being discontinued, the income or loss effects of the discontinued operations are included on the income statement in income from continuing operations. FALSE

Difficulty: Moderate
Larson – Chapter 14 #3
Learning Objective: 14-04 Explain the form and content of a corporate income statement with continuing and discontinued operations and earnings per share.
Type: Knowledge

4.	The statement of comprehensive income is a detailed statement of net income plus or minus any other comprehensive income items. TRUE

Difficulty: Hard
Larson – Chapter 14 #4
Learning Objective: 14-04 Explain the form and content of a corporate income statement with continuing and discontinued operations and earnings per share.
Type: Knowledge

5.	A share dividend is a corporation’s distribution of its own shares to its shareholders without receiving any payment in return. TRUE

Difficulty: Easy
Larson – Chapter 14 #5
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

6.	A share dividend reduces a corporation’s assets and equity. FALSE

Difficulty: Easy
Larson – Chapter 14 #6
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

7.	A share dividend reduces the number of previously outstanding shares. FALSE

Difficulty: Moderate
Larson – Chapter 14 #7
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

8.	A share dividend increases the number of previously outstanding shares. TRUE

Difficulty: Moderate
Larson – Chapter 14 #8
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

9.	A share dividend capitalizes retained earnings because it decreases a company’s contributed capital. FALSE

Difficulty: Hard
Larson – Chapter 14 #9
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

10.	A share split decreases the market price of the company shares. TRUE

Difficulty: Hard
Larson – Chapter 14 #10
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

11.	A share dividend is a distribution of corporate assets as a dividend that returns part of the original investment to shareholders. FALSE

Difficulty: Moderate
Larson – Chapter 14 #11
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

12.	The journal entry to record $10,000 in a share dividend on the declaration date can include a debit to cash dividends declared and a credit to dividends payable. FALSE

Difficulty: Hard
Larson – Chapter 14 #12
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Application

13.	The journal entry to record $25,000 market value in share dividends on the date of declaration can be a debit to share dividends and a credit to common share dividends distributable. TRUE

Difficulty: Hard
Larson – Chapter 14 #13
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Application

14.	A share split is the distribution of additional shares to shareholders according to their percent of ownership. TRUE

Difficulty: Easy
Larson – Chapter 14 #14
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

15.	A share split affects total equity as reported on the balance sheet. FALSE

Difficulty: Easy
Larson – Chapter 14 #15
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

16.	A reverse share split reduces the market value of shares and the par value per share. FALSE

Difficulty: Moderate
Larson – Chapter 14 #16
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

17.	A share dividend is not a liability on the balance sheet because it does not require a distribution of assets. TRUE

Difficulty: Moderate
Larson – Chapter 14 #17
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

18.	A 10% share dividend increases the number of outstanding shares. TRUE

Difficulty: Moderate
Larson – Chapter 14 #18
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

19.	Share dividends are recorded at market value. TRUE

Difficulty: Easy
Larson – Chapter 14 #19
Learning Objective: 14-01 Describe and account for share dividends and share splits.
Type: Knowledge

20.	Earnings per share is the amount of income earned by each share of a company’s outstanding common shares. TRUE

Difficulty: Easy
Larson – Chapter 14 #20
Learning Objective: 14-03 Calculate earnings per share and describe its use.
Type: Knowledge

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Fundamental Accounting Principles, 15th Edition Test Bank by Kermit Larson, Jenson A+

Fundamental Accounting Principles, 15th Edition Test Bank by Kermit Larson, Jenson A+

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