Q: A company has 10,000 preferred shares ($$2.50 non-cumulative) and 100,000 common shares issued and outstanding. The company reports a profit of 620$$,000 for the year. If the board declares and pays the annual preferred dividend, what is the amount of profit available for distribution to common shareholders?

$$620,000 - (10,000 \times 2.50) = 595$$,000$

Q: Which formula correctly calculates basic earnings per share (EPS)?

$$\text{EPS} = \frac{\text{Profit available to common shareholders}}{\text{Weighted average number of common shares outstanding}}$$

Q: A company had 200,000 shares outstanding at the beginning of the year. On July 1, it issued 24,000 additional shares. What is the weighted average number of shares outstanding for the year?

$$200,000 + (24,000 \times \frac{6}{12}) = 212,000$$

Q: A company has 300,000 shares outstanding at the start of the year. On April 1, it issues 60,000 additional shares. On October 1, it retires 20,000 shares. What is the weighted average number of shares outstanding for the year?

$$300,000 \times \frac{3}{12} + 360,000 \times \frac{6}{12} + 340,000 \times \frac{3}{12} = 330,000$$

Question 1

A company has 10,000 preferred shares ($$2.50 non-cumulative) and 100,000 common shares issued and outstanding. The company reports a profit of 620$$,000 for the year. If the board declares and pays the annual preferred dividend, what is the amount of profit available for distribution to common shareholders?

Accepted Answer

$$620,000 - (10,000 	imes 2.50) = 595$$,000$

Question 2

Which formula correctly calculates basic earnings per share (EPS)?

Accepted Answer

$$	ext{EPS} = \frac{	ext{Profit available to common shareholders}}{	ext{Weighted average number of common shares outstanding}}$$

Question 3

A company had 200,000 shares outstanding at the beginning of the year. On July 1, it issued 24,000 additional shares. What is the weighted average number of shares outstanding for the year?

Accepted Answer

$$200,000 + (24,000 	imes \frac{6}{12}) = 212,000$$

Question 4

If a company retires 10,000 shares at $$18 per share when the shares were originally issued at 15 $$per share, what is the effect on contributed capital and retained earnings?

Accepted Answer

Contributed capital decreases by $$150,000$$ and retained earnings decreases by $$30,000$$

Question 5

Which of the following transactions would NOT affect the weighted average number of shares outstanding during the year?

Accepted Answer

Declaration of a cash dividend on common shares

Question 6

A company reports profit from continuing operations of $$1,200,000 and a loss from discontinued operations of 200$$,000. If the weighted average number of shares outstanding is 400,000, what is the EPS from continuing operations?

Accepted Answer

$$\frac{1,200,000}{400,000} = 3.00$$

Question 7

On February 1, a company issues 5,500 preferred shares at $9.20 each. What is the total cash received from this transaction?

Accepted Answer

$$5,500 	imes 9.20 = 50,600$$

Question 8

A company has the following equity account balances at year-end: Common shares $$1,500,000, Retained earnings 800$$,000, Contributed surplus $50,000. What is the total equity?

Accepted Answer

$$1,500,000 + 800,000 + 50,000 = 2,350,000$$

Question 9

If a company declares a cash dividend on preferred shares but does not pay it by year-end, how should this be reported on the financial statements?

Accepted Answer

As a liability under dividends payable

Question 10

A company has 300,000 shares outstanding at the start of the year. On April 1, it issues 60,000 additional shares. On October 1, it retires 20,000 shares. What is the weighted average number of shares outstanding for the year?

Accepted Answer

$$300,000 	imes \frac{3}{12} + 360,000 	imes \frac{6}{12} + 340,000 	imes \frac{3}{12} = 330,000$$

Question 11

Which journal entry is required when a company retires shares at a price higher than their original issue price?

Accepted Answer

Debit Common Shares, Debit Retained Earnings, Credit Cash

Question 12

A company reports the following: Sales $$4,800,000, Cost of goods sold 3$$,600,000, Expenses $850,000. What is the profit from continuing operations?

Accepted Answer

$$4,800,000 - 3,600,000 - 850,000 = 350,000$$

Question 13

If a company has a loss from discontinued operations, how should this be presented on the income statement?

Accepted Answer

As a separate line item below profit from continuing operations, indicated by a minus sign

Question 14

A company issues 20,000 shares at $$10 per share. Later, it retires 5,000 shares at 12 $$per share. What is the total cash paid for the retirement?

Accepted Answer

$$5,000 	imes 12 = 60,000$$

Question 15

Which of the following is NOT included in the calculation of weighted average shares outstanding?

Accepted Answer

Shares authorized but not issued

Question 16

A company has profit from continuing operations of $$500,000 and a gain from discontinued operations of 50$$,000. If the weighted average number of shares outstanding is 100,000, what is the total EPS?

Accepted Answer

$$\frac{500,000 + 50,000}{100,000} = 5.50$$

Question 17

If a company issues shares at a price above par value, how is the excess amount recorded?

Accepted Answer

Credited to contributed surplus

Question 18

A company has 50,000 shares outstanding at the start of the year. On March 1, it issues 10,000 shares. On September 1, it retires 5,000 shares. What is the weighted average number of shares outstanding for the year?

Accepted Answer

$$50,000 	imes \frac{2}{12} + 60,000 	imes \frac{6}{12} + 55,000 	imes \frac{4}{12} = 56,667$$

Question 19

When preparing the equity section of the balance sheet, which accounts are included?

Accepted Answer

Common shares, preferred shares, contributed surplus, retained earnings

Financial Accounting: Equity, Earnings Per Share, and Journal Entries Study Guide

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