1. In computing the earnings per share of common stocknoncumulative preferred di

1. In computing the earnings per share of common stocknoncumulative preferred dividends not declared should beA. deducted from the net income for the year.B. added to the net income for the year.C. ignored.D. deducted from the net income for the year net of tax.My answer is C2.Effective January 2 2007 Kincaid Co. adopted the accounting principle of expensingadvertising and promotion costs as they?re incurred. Previously advertising and promotioncosts applicable to future periods were recorded in prepaid expenses. Kincaid can justify the change which was made for both financial statement and income tax reporting purposes. Kincaid?s prepaid advertising and promotion costs totaled $250000 at December 31 2006. Assume that the income tax rate is 40 percent for 2006 and 2007. The adjustment for the effect of the change in accounting principle should result in a net charge against income in the 2007 income statement ofA. $0. C. $150000.B. $100000. D. $250000.My answer is C3.Barker Inc. receives subscription payments for annual (one year) subscriptions to itsmagazine. Payments are recorded as revenue when received. Amounts received butunearned at the end of each of the last three years are shown below: 2005 2006 2007Unearned revenues $120000 $150000 $176000Barker failed to record the unearned revenues in each of the three years. As a result of the omission 2007 income wasA. overstated by $146000. C. understated by $26000.B. understated by $146000. D. overstated by $26000.My answer is B4.Selected information for Henry Company is as follows: December 31 2006 2007 Common stock $600000 $600000Additional paid-in capital 250000 250000Retained earnings 170000 370000Net income for year 120000 240000Henry?s return on common stockholder?s equity rounded to the nearest percentage pointfor 2007 isA. 20 percent. C. 28 percent.B. 21 percent. D. 40 percentMy answer is C5.Koppell Co. made the following errors in counting its year-end physical inventories:2000 $ 60000 overstatement2001 108000 understatement2002 90000 overstatementThe entry to correct the accounts at the end of 2002 isA. Retained Earnings $ 48000Cost of Goods Sold $ 42000Inventory 90000B. Retained Earnings 18000Cost of Goods Sold 72000Inventory 90000C. Inventory 90000Cost of Goods Sold 18000Retained Earnings 72000D. Cost of Goods Sold 198000Retained Earnings 108000Inventory 90000My answer is A6.A company changes from an accounting principle that?s not generally accepted to one that?s generally accepted. The effect of the change should be reported net of applicable income taxes in the currentA. income statement after income from continuing operations and before extraordinary items.B. income statement after extraordinary items.C. retained earnings statement as an adjustment of the opening balance.D. retained earnings statement after net income but before dividends.My answer is C7.An example of an item that should be reported as a prior-period adjustment is theA. collection of previously written-off accounts receivable.B. payment of taxes resulting from examination of prior years? income tax returns.C. correction of an error in financial statements of a prior year.D. receipt of insurance proceeds for damage to a building sustained in a prior year.My answer is B8.Landrover Inc. had 150000 shares of common stock issued and outstanding atDecember 31 2005. On July 1 2006 an additional 25000 shares of common stock were issued for cash. Landrover also had unexercised stock options to purchase 20000 shares of common stock at $15 per share outstanding at the beginning and end of 2006. The market price of Landrover?s common stock was $20 throughout 2006. What number of shares should be used in computing diluted earnings per share for the year endedDecember 31 2006?A. 182500 C. 177500B. 180000 D. 167500My answer is B9.Which of the following transactions would increase a firm?s current ratio?A. Purchase of inventory on accountB. Payment of accounts payableC. Collection of accounts receivableD. Purchase of temporary investments for cashMy answer is C10.An accounting change that requires that the cumulative effect of the adjustment bepresented in the income statement is a change inA. the life of equipment from five to seven years.B. depreciation method from straight-line to double-declining-balance.C. the specific subsidiaries included in consolidated financial statements.D. percentage used to determine the allowance for bad debts.My answer is B11.In comparing the current ratios of two companies why is it invalid to assume that the company with the higher current ratio is the better company?A. A high current ratio may indicate inadequate inventory on hand.B. A high current ratio may indicate inefficient use of various assets and liabilities.C. The two companies may define working capital in different terms.D. The two companies may be different sizes.My answer is B12.The 2006 net income of Atwater Inc. was $200000 and 100000 shares of its common stock were outstanding during the entire year. In addition there were outstanding optionsto purchase 10000 shares of common stock at $10 per share. These options were granted in 2003 and none had been exercised by December 31 2006. Market prices of Atwater?s common stock during 2006 wereJanuary 1 $20 per shareDecember 31 $40 per shareAverage Price $25 per shareThe amount that should be shown as Atwater?s diluted earnings per share for 2006 (rounded to the nearest cent) isA. $2.00. C. $1.89.B. $1.95. D. $1.86.My answer is C13.On December 31 2006 Prince Company appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes.The change will result in a $700000 increase in the beginning inventory at January 12006. Assuming a 40 percent income tax rate the cumulative effect of this accounting change reported for the year ended December 31 2006 isA. $700000. C. $350000.B. $420000. D. $280000.My answer is B