Q: How is earnings per share (EPS) calculated?

$$\text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Common Shares Outstanding}}$$

Question 1

Which of the following is NOT a characteristic of a corporation?

Accepted Answer

Unlimited liability for owners

Question 2

A company issues 5,000 shares of $$1 par value common stock for 18$$,000 worth of equipment. How should this transaction be recorded?

Accepted Answer

Debit Equipment $$18,000; Credit Common Stock 5$$,000; Credit Paid-in Capital in Excess of Par $13,000

Question 3

Which of the following best describes treasury stock?

Accepted Answer

Stock previously issued and later reacquired by the company

Question 4

A company declares a $0.10 per share cash dividend on 50,000 outstanding shares. What is the total dividend declared?

Accepted Answer

$5,000

Question 5

Which of the following is true regarding stock dividends?

Accepted Answer

They do not affect total stockholders’ equity

Question 6

A company has 1,000 shares of 6%, $$50 par value cumulative preferred stock. If no dividends were paid last year and 10$$,000 is available for dividends this year, how much will common shareholders receive?

Accepted Answer

$0

Question 7

Which journal entry is made on the date of record for a cash dividend?

Accepted Answer

No entry is made

Question 8

What is the effect of a 2-for-1 stock split on the par value and number of shares outstanding?

Accepted Answer

Par value is halved; shares outstanding double

Question 9

How is earnings per share (EPS) calculated?

Accepted Answer

$$	ext{EPS} = \frac{	ext{Net Income} - 	ext{Preferred Dividends}}{	ext{Weighted Average Common Shares Outstanding}}$$

Question 10

A company reacquires 1,000 shares of its own stock at $10 per share. How is this transaction recorded?

Accepted Answer

Debit Treasury Stock $$10,000; Credit Cash 10$$,000

Question 11

Which of the following is a reason a company might purchase treasury stock?

Accepted Answer

To support the company’s stock price

Question 12

If a company sells treasury stock above its cost, the excess is credited to which account?

Accepted Answer

Paid-in Capital from Treasury Stock

Question 13

Which of the following best describes the preemptive right of stockholders?

Accepted Answer

The right to maintain their proportional ownership when new shares are issued

Question 14

A company has net income of $$120,000, preferred dividends of 20$$,000, and 50,000 weighted average common shares outstanding. What is the EPS?

Accepted Answer

$2.40

Question 15

Which of the following is true about the statement of retained earnings?

Accepted Answer

It reports how retained earnings changed during the period

Question 16

What is a prior-period adjustment?

Accepted Answer

A correction to Retained Earnings for errors of an earlier period

Question 17

The price/earnings (P/E) ratio is calculated as:

Accepted Answer

$$	ext{P/E Ratio} = \frac{	ext{Market Price per Share}}{	ext{Earnings per Share}}$$

Question 18

A company issues 3,000 shares of $$1 stated value stock for 5 $$per share. What is the correct journal entry?

Accepted Answer

Debit Cash $$15,000; Credit Common Stock 3$$,000; Credit Paid-in Capital in Excess of Stated Value $12,000

Question 19

Which of the following is NOT an effect of a stock split?

Accepted Answer

Increase in total stockholders’ equity

Question 20

The rate of return on common stockholders’ equity is calculated as:

Accepted Answer

$$	ext{Rate of Return} = \frac{	ext{Net Income} - 	ext{Preferred Dividends}}{	ext{Average Common Stockholders’ Equity}}$$

Stockholders’ Equity: Structure, Transactions, and Analysis

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