Q: Which formula correctly calculates Earnings Per Share (EPS)?

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

Question 1

Which of the following is NOT an advantage of the corporate form of business organization?

Accepted Answer

Double taxation of distributed profits

Question 2

A company issues 5,000 shares of $$2 par value common stock for 60$$,000 cash. What is the correct journal entry to record this transaction?

Accepted Answer

Db. Cash $$60,000; Cr. Common Stock 10$$,000; Cr. Paid-in Capital in Excess of Par $50,000

Question 3

Which of the following best describes treasury stock?

Accepted Answer

Stock issued by the company and later reacquired by the company

Question 4

A company declares a cash dividend on June 1, with a record date of June 15 and payment date of June 30. On which date does the company record a liability for the dividend?

Accepted Answer

June 1

Question 5

Which formula correctly calculates Earnings Per Share (EPS)?

Accepted Answer

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

Question 6

A company has 20,000 shares of $$10 par, 8% cumulative preferred stock and 80,000 shares of common stock outstanding. If the company declares a 100$$,000 dividend after skipping last year's dividend, how much will common shareholders receive?

Accepted Answer

$68,000

Question 7

Which of the following transactions does NOT affect total stockholders’ equity?

Accepted Answer

Stock split

Question 8

A company issues 1,000 shares of $$1 par value common stock for equipment valued at 25$$,000. What is the correct journal entry?

Accepted Answer

Db. Equipment $$25,000; Cr. Common Stock 1$$,000; Cr. Paid-in Capital in Excess of Par $24,000

Question 9

Which of the following is true regarding the resale of treasury stock?

Accepted Answer

Amounts received above cost are credited to Paid-in Capital from Treasury Stock Transactions

Question 10

A company has 10,000 shares of $$5 par value common stock outstanding. It declares a 20% stock dividend when the market price is 30 $$per share. What amount is debited to Retained Earnings?

Accepted Answer

$$60,000 (2$$,000 shares x $30 market price)

Question 11

Which of the following best describes the effect of a stock split?

Accepted Answer

Increases the number of shares and decreases the par value per share

Question 12

Which of the following is NOT a basic right of common stockholders?

Accepted Answer

Right to receive dividends before preferred stockholders

Question 13

A company purchases 5,000 shares of its own $$1 par value common stock at 20 $$per share. How is this transaction recorded?

Accepted Answer

Db. Treasury Stock $$100,000; Cr. Cash 100$$,000

Question 14

Which of the following best describes 'par value' of common stock?

Accepted Answer

An arbitrary amount assigned to each share when authorized

Question 15

A company has 50,000 shares of $$10 par, 5% cumulative preferred stock and 200,000 shares of common stock outstanding. If the company did not pay dividends last year and declares a 150$$,000 dividend this year, how much will preferred shareholders receive?

Accepted Answer

$75,000

Question 16

Which of the following is the correct formula for calculating dividend yield?

Accepted Answer

$$	ext{Dividend Yield} = \frac{	ext{Dividends per Share}}{	ext{Market Price per Share}}$$

Question 17

Which of the following is a reason a company might repurchase its own stock as treasury stock?

Accepted Answer

To increase earnings per share (EPS)

Question 18

Which of the following is the correct order for reporting stockholders’ equity accounts on the balance sheet?

Accepted Answer

Preferred stock, Common stock, Additional paid-in capital, Retained earnings, Treasury stock

Question 19

A company has net income of $$500,000, preferred dividends of 40$$,000, and 100,000 weighted average common shares outstanding. What is the EPS?

Accepted Answer

$4.60

Stockholders’ Equity: Structure, Transactions, and Financial Reporting

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