英文中return/revenue/income/erning/profit/gain各自的含义及相互区别?
叶_惠君149
return（销售退回）,revenue泛指收入,income（主营业务收入） earing（赚钱,毛收入）profit（利益）gain（获得的收入,利益,侧重指通过劳动努力去获得收入.）
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understanding
income statements(Reading
The percentage-of-completion method of accounting for long-term contracts:
Minimizes the present value of income tax payments.
Relies less on estimates of futures costs that a firm expects to incur.
More accurately reports the current status of uncompleted projects.
percentage-of-completion method recognizes revenue based on the construction
activity completed for a period, the income statement thud more accurately
reports the revenue/expense items of the uncompleted projects.
is incorrect. With the percentage-of-completion method, the present
value of income tax payments is maximized, not minimized, because
revenue is recognized earlier and taxes are paid earlier.
is incorrect. The percentage-of-completion method relies more, not
less, on estimates of the degree of completion and the extent of future
costs to be incurred.
An analyst complied the following information for Capital Company:
average # of common shares outstanding
shares outstanding, Dec 31, 20x2
average # of preferred shares outstanding
shares outstanding, Dec 31, 20x2
earnings per share (EPS) for the one-year period ended Dec 31, 20x2
for Capital Company is closest to:
A.&&& $0.09
B.&&&& $0.10
C.&&&& $0.12
&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&
Addy, Inc started a 3-year construction project on 1/1/20x2. Projected
revenues are 30$ million and expenses (including taxes) are estimated
at 75% of total revenue. The project is to be completed as follow:
25% by 12/31/20x2, 60% by 12/31/20x3, and 100% by 12/31/20x4. Cash
will be received based on completion rates. All of the company’s revenue
is generated by this project. The company’s equity is generated by
the profits from this project and no dividends are expected to be
paid. What will the return on average equity be in 20x4 under the
percentage of completion?
Percentage
of completion
at end of year
(1): average equity = ($1,875+4,500)/2= $3,188
(2): average equity = ($4,500+7,500)/2 =$6,000
on equity = net income/average equity
= $3,000/6,000 = 50% for percentage completion
is incorrect. Year-end 20x4 equity was incorrectly used for both methods.
is incorrect. Averages of 20x3 and 20x4 operating profit were incorrectly
used for both methods.
A company suffered a substantial loss when its production facility
was destroyed in an earthquake against which it was not insured. Geological
scientists were surprised by the earthquake as there was no evidence
that one had ever occurred in that area in the past. Which of the
following statements is most accurate? The company should report
the loss on its income statement:
net of taxes if it reports under U.S. GAAP.
as an extraordinary item if it reports under IFRS.
as an unusual item if it reports under U.S. GAAP.
qualify as an extraordinary item, an item must be both unusual in
nature and infrequent in occurrence: The description of the earthquake
meets these criteria (-Geological scientists
were surprised by the earthquake as there was no evidence that one
had ever occurred in that area in the past). Extraordinary
items are only allowed under U.S. GAAP and are reported on the income
statement net of tax.
According to International Financial Reporting Standards, which of
the following conditions should be satisfied in order to report
revenue on the income statement?
Payment has been received.
Costs can be reliably measured.
Goods have been delivered to the customer.
to the International Accounting Standards Board (IASB), revenue is
recognized from the sale of goods when:
1.&&&&&& The
risk and reward of ownership is transferred.
2.&&&&&& There
is no continuing control or management over the goods sold.
3.&&&&&& Revenue
can be reliably measured.
4.&&&&&& There
is a probable flow of economic benefits.
5.&&&&&& The
cost can be reliably measured.
IFRS conditions that should be met include that the costs incurred
can be reliably measured, and it is likely that the economic benefits
will flow to the entity, not the actual receipt of any payment, and
that the significant risks and rewards of ownership have been transferred,
which is normally when the goods have been delivered, but not always.
is incorrect. Receiving the payment is not a condition to report revenue
under IFRS.
is incorrect. According to the Financial Accounting Standards Board
(FASB), revenue is recognized in the income statement when (a) realized
or realizable and (b) earned. The Securities and Exchange Commission
(SEC) provides additional guidance by listing four criteria to determine
whether revenue should be recognized:
1.&&&&& There
is evidence of an arrangement between the buyer and seller.
2.&&&&& The
product has been delivered or the service has been rendered.
3.&&&&& The
price is determined or determinable.
4.&&&&& The
seller is reasonably sure of collecting money.
company entered into a three-year construction project with a total
contract price of $10.6 million and an expected total cost of $8.8
million. The following table provides cash flow information relating
to the contract:
figures in millions
incurred and paid
billed and payments received
the company uses the percentage-of-completion method, the amount of
revenue recognized (in millions) in Year 2 is closest to:
revenue reported is equal to the percentage of the contract that is
completed in that period, where percentage completion is based on
recognized (in millions) in Year 2:
retailer provides credit cards only to its most valued customers who
pass a rigorous credit check. A credit card customer ordered an item
from the retailer in May. The item was shipped and delivered in July.
The item appeared on the customer’s July credit card statement and
was paid in full by the due date in August. The most appropriate
month in which the retailer should recognize the revenue is:
appropriate time to recognize revenue would be in the month of J
the risks and rewards have been transferred to the buyer (shipped
and delivered), the revenue can be reliably measured, and it is probable
that the economic benefits will flow to the seller (the rigorous credit
check was completed). Neither the actual payment date nor the credit
card statement date is relevant here.
An analyst gathers the following information about a company’s common
shares outstanding
shares issued
1 August 2011 2 for 1 stock split
31 December
shares outstanding
calculate earnings per share for 2011, the company’s weighted average
number of shares outstanding is closest to:
weighted average number of shares is determined by the length of time
each quantity of shares was outstanding. A stock split is treated
as if it occurred at the beginning of the year.
before split
effect of 2:1 split
A company uses the percentage-of-completion method to recognize revenue
from its long term construction contracts and estimates percent completion
based on expenditures incurred as a percentage of total estimated
expenditures. A three-year contract for EUR10 million was undertaken
with a 30% gross profit anticipated. The project is now at the end
of its second year, and the following end-of-year information is available:
incurred during year
EUR3,117,500
EUR2,582,500
total costs
gross profit recognized in year 2 is closest to:
EUR617,500.
EUR880,000.
EUR960,000.
completed=
Complete x Anticipated Profit - Profit Already Recognized
3,117,500+2,582,500=
3,117,500/7,250,000
5,700,000/7,600,000
x (10,000,000 - 7,250,000) =1,182,500
x (10,000,000 - 7,600,000)
The following financial information is available at the end of the
Information
Authorized
& outstanding
pays a dividend of $1 per share.
stock, series A
Nonconvertible,
pays a dividend of $4 per share.
stock, series B
pays a dividend of $7.50 per share. Each share is convertible
into 2.5 common shares.
Additional
Information:
earnings at start of year = $6,000,000
diluted EPS is closest to:
convertible preferred shares are anti-dilutive, as shown in the table
therefore the diluted EPS is the same as the basic EPS, $2.91.
sh x 7.50/sh
If-Converted Method
available to common shareholders
Average Number of Common Shares (WACS)
com/pf x 30,000 pf
= (Earnings available to Common Shareholders)/ (WACS)
Exceeds Basic EPS;
Series B is antidilutive and is therefore not included
The following information is available on a company for the current
$1,000,000
number of common shares outstanding
of convertible securities outstanding:
Convertible
preferred shares outstanding
dividend/share
each preferred is convertible into 5 shares of common stock
Convertible
bonds, $100 face value per bond
each bond is convertible into 25 shares of common stock
company’s diluted EPS is closest to:
both the preferred shares and bonds are dilutive, they should both
be converted to calculate the diluted EPS. Diluted EPS is the lowest
value. $7.72 has calculated in the following table.
Diluted EPS: Bond
Diluted EPS: Preferred
Diluted EPS: Both
Net Income
$1,000,000
$1,000,000
$1,000,000
$1,000,000
Preferred Dividends
After-tax cost of
x 80,000 x (1-.40)
$1,000,000
$1,003,840
Average common shares
outstanding
Preferred converted
Bond converted
Denominator
During 2010, Company A sold a piece of land with a cost of $6 million
to Company B for $10 million. Company B made a $2 million down payment
with the remaining balance to be paid over the next 5 years. It has
been determined that there is significant doubt about the ability
and commitment of the buyer to complete all payments. Company A would most likely report a profit in 2010 of:
$4 million using the accrual method.
$0.8 million using the installment method.
$2 million using the cost recovery method.
installment sale occurs when a firm finances a sale and payments are
expected to be received over an extended period. If collectability
is certain, revenue is recognized at the time of sale using the normal
revenue recognition criteria. If collectability cannot be reasonably
estimated, the installment method is used.
installment method, profit is recognized as cash is collected.
reported in 2010 is:
x2=0.8million
is incorrect. It has been determined that there is significant doubt
about the ability and commitment of the buyer to complete all payments.
Normal revenue recognition method cannot be used here.
is incorrect.Cost recovery method could be used in this case, but
the reported profit would be $0. Because under the cost recovery method,
profit is recognized only when cash collected exceeds costs incurred.
The table below shows changes to the number of common shares outstanding
for a company during 2012:
outstanding
shares issued
for 1 stock split
shares outstanding
calculate earnings per share for 2012, the company’s weighted average
number of shares outstanding is closest to:
weighted average number of shares outstanding is time weighted: 5/12
of the year there were 180,000 shares, and 7/12 of the year there
were 240,000 (180,000+60,000) on a pre- the stock split
is treated retroactively to the start of the year.
x 5/12) + (240,000 x 7/12)] x 2 = 430,000
A company entered into a three-year construction project with a total
contract price of $5.3 million and an expected total cost of $4.4
million. The following table provides cash flow information relating
to the contract:
figures in $
incurred and paid
billed and payments received
the company uses the percentage-of-completion method, the amount of
revenue (in $) recognized in Year 2 will be closest to:
2,800,000.
3,372,727.
3,616,636.
revenue reported is equal to the percentage of the contract that is
completed in that period, where percentage completion is based on
costs. In Year 2, the percent completed is $3,000,000/$4,400,000 =
68.2%, resulting in 68.2% x 5,300,000 = 3,616,636 revenue being recognized.
A company, with a tax rate of 40%, sold a capital asset with a net
book value of $500,000 for $570,000 during the year. Which of the
following amounts (in $) will most likely be reported on its
income statement for the year related to the asset sale?
disposition of a capital asset is reported as a net gain or loss ($570,000
– $500,000 = $70,000) on the income statement before tax affects.
A company reported net income of $400,000 for the year. At the end
of the year, the company had an unrealized gain of $50,000 on its
available-for-sale securities, an unrealized gain of $40,000 on held-to-maturity
securities and an unrealized loss of $100,000 on its portfolio of
held-for-trading securities. The company’s comprehensive income (in
$) for the year is closest to:
Comprehensive
Income = Net Income + Other Comprehensive Income = NI + OCI
Comprehensive Income will include unrealized gains or losses on available
for sale securities. Net Income includes unrealized gains or losses
in trading securities, while securities classified as held to maturity
are maintained at historical cost and therefore the unrealized gains
won’t impact comprehensive income.
= $50,000; Comprehensive Income = NI + OCI = $400,000 + $50,000=$450,000
According to International Financial Reporting Standards which of
the following is one of the conditions that must be met for
revenue recognition to occur?
Costs can be reliably measured
Payment has been partially received
Goods have been delivered to the customer
IASB’s conditions that must be met include that the costs incurred
can be reliably measured, there is assurance of payment, not necessarily
an actual receipt of any payment, and that the significant risks and
rewards of ownership have been transferred, which is normally (but
not always) when the goods have been delivered.
A company had 100,000 common shares outstanding on 1 January 2012.
The company has no plans to issue additional shares or purchase treasury
shares during the year, but is planning either a two-for-one stock
split or a 100 percent stock dividend on 1 July. The number of shares
used to determine earnings per share at 31 December 2012, will be closest to:
200,000 for both the stock split and the stock dividend.
200,000 for the stock split and 150,000 for the stock dividend.
150,000 for the stock split and 200,000 for the stock dividend.
dividends and stock splits are treated in the same way for purposes
of determining weighted average number o the
adjustment in the number of shares is made as if the stock split or
dividend occurred at the beginning of the year.
Which of the following transactions will most likely result
in a decrease in a company’s current ratio? The:
recording of a warranty expense.
recording of revenue before cash is received.
payment of a property insurance policy for the following year.
recording of a warranty expense will create a warranty liability and
the resulting increase in current liabilities will decrease the current
is incorrect. Recording the revenue will increase the CA while having
no affect on the CL, so the current ratio will increase.
is incorrect. The payment of a property
insurance policy for the following year has no effect both on CA or
Cl, so current ratio stays the same.
A company has just completed the sale of a tract of land for EUR3.5
million which was originally acquired at a cost of EUR2.0 million. The
purchaser made a down-payment of EUR200,000 with the remainder to be
paid in equal installments over the next 10 years. A short time after
the sale, significant doubt arose about the purchaser’s ability to
meet the future obligations for the land purchase. When compared to
the cost recovery method of revenue recognition, the profit (in EUR)
that the company will recognize in the year of the sale under the
installment method is most likely to be higher by:
the installment method, the portion of the total profit of the sale
(3.5 – 2.0 = 1.5) that is recognized in each period is determined
by the percentage of the total sales price for which the seller has
received cash, which is EUR1.5/EUR3.5 x EUR200,000 = EUR85,714; under the
cost recovery method, no profit is recognized until the cash amounts
received have exceed the seller’s cost of the property.
For the most recent year a manufacturing company reports the following
items on their income statement:
expense $62,500
on disposal of fixed assets $50,000
gain on sale of available-for-sale securities $17,750
of the items is classified as an operating item in the company’s income
statement?
Interest expense.
Loss on disposal of fixed assets.
Realized gain on sale of available-for-sale securities.
loss on the disposal of fixed assets is an unusual or infrequent item
but it is still part of normal operating activities.
is incorrect. The interest expense is the result of financing activities
and would be classified as a nonoperating expense by nonfinancial
service companies.
is incorrect.The realized gain on sale of available for sale securities
is an investing activity and would also be classified as a nonoperating
gain by a manufacturing company.
An analyst gathers the following information about a company:
market price per share of common stock during the year
price per share for options on 50,000 common shares
price per share for warrants on 20,000 common shares
the treasury stock method, the number of incremental shares used to
compute diluted earnings per share is closest to:
EPS is calculated using the treasury stock method that considers what
would be the effect if the options or warrants had been exercised.
Only options or warrants that are in-the-money are included, as out-of-the-money
options would not be exercised. Therefore only the warrants are dilutive:
their exercise price is below the average market price of the stock.
Using the treasury stock method, the number of new shares issued on
exercise is reduced by the number of shares that could be purchased
with the cash received upon exercise of the warrants: 20,000($30)
= $600,000 in proceeds. $600,000 / $40 = 15,000 shares treasury stock.
Incremental shares using the treasury stock method = 20,000 – 15,000
An analyst gathers the following information about a company:
of common stock outstanding
income for the year
$1,500,000
value of convertible bonds with a 4 percent coupon rate
$10,000,000
value of cumulative preferred stock with a 7 percent dividend
$2,000,000
bonds were issued at par and can be converted into 300,000 common
shares. All securities were outstanding for the entire year. Diluted
earnings per share is closest to:
of $140,000 (0.07 x 2,000,000) should be deducted from net income
to determine the amount available to common shareholders:
$1,360,000
= (1,500,000 –140,000).
EPS would be $1,360,000 / 1,000,000 or $1.36 per share.
EPS would consider the convertible bonds if they were dilutive.
on the bonds is $400,000 and the after-tax amount add back to net
(1-.30) = $280,000.
EPS, assuming conversion, is
($1,360,000
+ 280,000) / (1,000,000 +300,000) = 1,640,000/1,300,000= $1.26 per
bonds are dilutive.
An analyst gathers the following data about a company and the industry
in which it
a percent of sales
of goods sold
of the following conclusions is most reasonable? Compared to
the industry, the company:
has the same cost structure and net profit margin.
has a lower gross profit margin and spends more on its operating costs.
is better at controlling product costs, but less effective at controlling
operating costs.
Conclusion
5,000-2,100
Profit Margin
2,900/5,000
company’s cost of goods
or product costs, it is controlling them better.
1,750/5,000
company’s operating costs are higher. It is not as effective
at controlling its operating costs asthe industry.
An analyst is forecasting EPS for a company. She prepares the following
common sized data from its recent annual report and estimates sales
$ millions
as % of sales
Restructuring
capital structure of the company has not changed and the company has
no short term interest bearing debt outstanding. The projected net
income (in $ millions) for
is closest to:
cost of goods sold and operating expenses are constant over the two-year
period and they can reasonably be used to forecast 2009. Interest
expense is declining as a percent of sales, implying it is a fixed
cost. Conversion into dollars for each year shows what interest expense
2008 =$80 (3.72% x 2,150); .02 x 1,990) and that
would be a reasonable projected amount to use. The restructuring charge
should not be included as it is a non-recurring item. The tax rate,
35%, is given.
Sales&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
(45%)&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
expenses (40%)&&&&&&&&&&&&&&&&&&&&&&
expense&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&&&&80.00
margin&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
(35%)&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 90.1
Income&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& 167.40
The unrealized gains and losses arising from changes in the market
value of available-for-sale securities are reported under U.S. GAAP
and International Financial Reporting Standards (IFRS) in the:
equity section for both.
equity section for U.S. GAAP and the income statement for IFRS.
income statement for U.S. GAAP and the equity section for IFRS.
both U.S. GAAP and IFRS the unrealized gains and losses arising from
carrying available-for-sale securities at market value are reported
in equity as part of accumulated other comprehensive income.
The following information is available from a company’s according
EURmillions
for the year
expenses for the year
from available-for-sale securities
on foreign currency translation adjustments on a foreign subsidiary
company’s total comprehensive income (in million) is closest to:
A.&&& EUR1,150
B.&&&& EUR3,150
C.&&&& EUR3,650
comprehensive income= net income + other comprehensive income
income& revenue – expenses
comprehensive income includes gains or losses on available-for-sale
securities and translation adjustments on foreign subsidiaries.
- expense) + gain on AFS – loss on FX translation
(12,500-10,000)+1.475-325=3,650
During 2012, Nagano Incorporated, a manufacturing company, reported
the following items on their income statement:
on disposal of fixed assets
U.S.GAAP, the correct classification of each of these items on the
income statement would be as a(n):
on disposal of fixed assets
Nonoperating
Nonoperating
A.&&& Answer
B.&&&& Answer
C.&&&& Answer
loss on the disposal of fixed assets is an unusual or infrequent item
but it is still part of normal operating activities. The interest
expense is the result of financing activities and would be classified
as a nonoperating expense by nonfinancial service companies.
Melbourne Manufacturing has equipment with an original cost of $850,000,
accumulated amortization of $300,000 and 5 year of estimated remaining
useful life. Due to a change in market conditions Melbourne now estimate
that the equipment will only generate cash flow of $80,000 per year
over its remaining useful life. The company’s incremental borrowing
rate is 8%. What is the amount of the impairment loss closest to and
what would be the effect on the company’s return on asset (ROA) in
future periods?(under U.S.GAAP)
Impairment
on ROA in future periods
A.&&& Answer
B.&&&& Answer
C.&&&& Answer
equipment is impaired. NBV=$550,000, which is greater than the sum
of the undiscounted cash flow 5 years x$80,000=$400,000
amount of the impairment is
550,000-PV
of the cash flow=550,000-319,417(PMT=80,000, N=5,i=8%)=230,583.
company’s ROA will increase.
will be lower depreciation charges in the future, which will increase
net income, and a lower carrying value of assets, which decreases
total assets. Both factors would increase any future ROA.
An analyst gathered the following information about a company:
market price per share of common stock during the year
price per share for options on 50,000 common shares
price per share for warrants on 20,000 common shares
the treasury stock method, the number of incremental shares should
be used to compute diluted earnings per share is closest to:
A.&&& 5,000.
B.&&&& 12,500.
C.&&&& 15,000.
EPS is calculated using the treasury stock method that considers what
would be the effect if the options or warrants had been exercised.
Only options or warrants that are in-the-money are included, as out-of-the-money
options would not be e3xercised. Therefore, only the warrants are
dilutive, the exercise preice is below the average market price of
the stock. Using the treasury stock method:
20,000($30)=$600,000
in proceeds.
$600,000/$40=15,000
shares treasury stock. Incremental shares using the treasury stock
method = 20,000 – 15,000 = 5,000.
The following information was obtained from a company’s 10-k.
of shares outstanding, June 30, 20x2
of shares, September 30, 20x2
Repurchase
of shares, December 31, 20x2
split, March 31, 20x3
weighted average number of shares outstanding for the one-year period
ended June 30,20x3 is closest to:
A.&&& 3,000,000.
B.&&&& 4,500,000.
C.&&&& 6,000,000.
weighted average number of shares outstanding is time weighted: 3/12
of the year there were 1,500,000 shares, 3/12 of the year there were
2,500,000 (1,500,000+1,000,000),3/12 of the year there were 2,000,000
(1,500,000+1,000,000-500,000) on a pre-split basis (the stock split
is treated retroactively to the start of the year), and 3/12 of the
year there were 6,000,000 (=2,000,000 x 3)
average number of shares outstanding for the one-year period:
[(1,500,000
x 3/12) + (2,500,000 x 3/12)+(2,000,000 x 2/12)] x 3+6,000,000 x 3/12=
An analyst gathered the following information about a company:
of common stock
income for the year
$1,500,000
value of convertible bonds with a 4% coupon rate
$10,000,000
value of cumulative preferred stock with a 7% dividend rate
$2,000,000
bonds were issued at par and can be converted into 300,000 common
shares. All securities were outstanding for the entire year.
earnings per share for the company are closest to:
EPS: Bond converted
$1,500,000
$1,500,000
$(140,000)
$(140,000)
cost of interest
x 10,000,000 x (1-0.30)
$1,360,000
$1,640,000
common shares outstanding
Denominator
Income statements for two companies (A and B) and the common-sized
income statement for the industry are provided below:
$ figures in ‘000s
best conclusion an analyst can make is:
Company B’s interest rate is lower than the industry average.
Both companies’ tax rates are higher than the industry average.
Company A earns a higher gross margin than both Company B and the
A earns a higher gross margin than both Company B and the industry.
is incorrect. The interest rate is not
a function of sales and cannot be analyzed on a common sized income
statement.
is incorrect.
rates are determined based on taxes ÷ pretax earnings, not as a percentage
of sales (as shown in common sized analysis).
rate = taxes ÷ pretax earnings
tax rates for the companies are not higher than the industry.
The following information is available for Ajax Company’s most recent
fiscal year:
earnings per share
$20,000,000
$5,000,000
average shares outstanding (WASO)
10,000,000
shares outstanding throughout period
$100 par value preferred stock pays a 5% dividend. Each preferred
share may be converted into five common shares. The preferred stock
market price is $102 per share and the common stock trades at $19
per share.
earnings per share (EPS) for Ajax company is closest to:
EPS is derived from the following calculation:
calculate the dilutive effect of the preferred shares, assume that
the shares were converted at the beginning of the period. Assuming
this conversion, the $5,000,000 preferred dividends would not have
been paid and there would have been an additional 5,000,000 common
shares (5 new shares for each preferred share outstanding). The formula
income available to common shareholders was $15,000,000 ($20m-$5m
in preferred dividends). If the shares were converted, the $5m in
preferred dividends is added back.
EPS cannot exceed basic EPS. Basic EPS is calculated as follows:
diluted EPS does not exceed basic EPS. Had diluted EPS exceeded basic
EPS, the convertible preferred stock would have been anti-dilutive
and diluted EPS would be the same s basic EPS.
Which of the following transactions would typically be included as
part of a company’s income from discontinued operations reported on
the income statement?
A gain from the sale of an investment.
A loss incurred from the settlement of a lawsuit.
A loss from the operations of a business component classified as “held
for sale.”
loss from the operations of “held for sale” business components that
have separately identifiable operations, assets and cash flows would
typically be reported under discontinued operations.
and B are incorrect. Although each item is considered an unusual or
infrequent item, it would be reported as part of income from continuing
operations. If significant, the item may be reported as a separate
line item as long as it is presented on a pretax basis, appears “above
the line”, and is not presented as an extraordinary item.
Bao Company reported net income for the year ended December 31, 2012
of $6,000,000. The company’s tax rate was 40%. At the same date, the
company had outstanding $30 million in 6% convertible bonds with a
conversion price of $60 per share and 3 million common shares with
a par value of $10. The only change in the capital structure during
2012 was the repurchase of 100,000 common shares on April 1.
diluted earnings per share for 2012 were closest to:
average shares outstanding =
outstanding before treasury repurchase for ? of the year = 775,000
outstanding before treasury repurchase for ?& of the year = 2,250,000
average shares = 775,000+2,250,000 = 3,025,000
EPS= income from continuing operations/ WASO
&&&&&&&&&&&&&&&&
=$6,000,000/3,025,000 = $1.98
common shares from bond conversion
=$30,000,000
/$60 = 500,000 shares
of interest expense net of taxes
million x 6% x (1-0.4) = $1,080,000
EPS assuming conversion
=($6,000,000+1,080,000)/(3,025,000+500,000)
adjustment for the bond conversion is anti-dilutive (the diluted EPS
as calculated is smaller than basic EPS) so basic EPS and diluted
EPS are the same at $1.98.
A company’s comparative income statements and balance sheets are presented
the year ended 31 August
$ thousands)
before taxes
at 31 August
$ thousands)
& investments
receivable
Inventories
current assets
long-term assets
Liabilities
current liabilities
current liabilities
liabilities
Shareholders’
liabilities & equity
cash collected from customers in 2012 is closest to:
A.&&& $88,500.
B.&&&& $96,100.
C.&&&& $111,500.
collected from customers = revenues – increase in AR
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
= $100 – (25-13.5)
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
&Under U.S.GAAP, foreign currency translation adjustments are
most likely reported in the company’s:
income statement.
statement of cash flows.
statement of stockholders’ equity.
statement of stockholders’ equity includes accumulated other comprehensive
income that contains the foreign currency translation adjustment.
other comprehensive income includes transactions that are not included
in net income, such as:
·&&&&&&&& Foreign
currency translation gains and losses.
·&&&&&&&& Adjustments
for minimum pension liability.
·&&&&&&&& Unrealized
gains and losses from cash flow hedging derivatives.
·&&&&&&&& Unrealized
gains and losses from available-for-sale securities.
the reporting of an extraordinary item, net of tax, allowed under
U.S.GAAP and IFRS?
Yes, under both.
Yes under IFRS, but not under U.S.GAAP.
Yes under U.S.GAAP, but not under IFRS.
U.S.GAAP, an extraordinary item is a material transaction or event
that is both unusual and infrequent in occurrence.
does not allow extraordinary items to be separated from operating
results in the income statement.
under U.S.GAAP, disclosures related to the valuation allowance for
changes in the carrying amount of a company’s noncurrent investment
securities will most likely be included in the company’s:
income statement.
statement of cash flows.
statement of stockholders’ equity.
statement of stockholders’ equity includes accumulated other comprehensive
income that contains the unrealized gains and losses on available-for-sale
securities.
Under U.S.GAAP, compared to the completed contract method of revenue
recognition, the percentage-of-completion& method most likely
result in higher:
total asset.
total liabilities.
both total asset and total liabilities.
to the completed-contract method, the percentage-of-completion method
will most likely result in higher total assets, reflecting the accrual
of gross profit during the contract period and lower liabilities,
as the higher level of construction-in-progress provides a larger
offset to advance billings.
Which of the following items affects owners’ equity but is not included
as a component of net income?
Depreciation.
Dividends received on shares of another company classified as available
Foreign currency translation gains and losses.
currency translation gains and losses are nor reported on the income
statement as a component of net income, but affect owners’ equity
because they are included as other comprehensive income. The other
items are included on the income statement so they affect both net
income and owners’ equity.
IFRS and U.S.GAAP are most similar in their requirements for:
extraordinary items.
discontinued operations.
valuation of fixed assets.
and U.S.GAAP both require discontinued operations to be reported on
the income statement separately from continuing operations and net
is incorrect. U.S.GAAP permits unusual and infrequent items to be
treated as extraordinary items. But IFRS does not permit extraordinary
is incorrect. Fixed assets can be revalued upward under IFRS but not
under U.S.GAAP.
An analyst gathered the following data about a company:
·&&&&&&&& 1,000,000
shares of common are outstanding at the beginning of the year.
·&&&&&&&& 10,000
6% convertible bonds (conversion ratio is 20 to 1) were issued at
par June 30 of this year.
·&&&&&&&& The
company has 100,000 warrants outstanding all year with an exercise
price $25 per share.
·&&&&&&&& The
average stock price for the period is $20, and the ending stock price
the convertible bonds are considered dilutive, the number of shares
of common stock that the analyst should use to calculate diluted earnings
per share is:
A.&&& 1,000,000.
B.&&&& 1,100,000.
C.&&&& 1,266,667.
the capital structure contains options or warrants, the treasury stock
method uses the average price. In this situation, the warrants are
antidilutive because the exercise price of the warrant ($25) is higher
than the market price of the stock ($20). Thus, warrants are excluded.
Otherwise, common shares would be reduced.
shares of common stock = 1,000,000x(12/12)
add the impact of the bond conversion:
(10,000)(20)
x (6/12)=100,000.
the adjusted denominator for gully diluted EPS is:
1,000,000+100,000=1,100,000
Which of the following statements about the approaches for calculating
EPS in simple versus complex capital structure is least accurate?
If convertible bonds are dilutive, the numerator in the diluted EPS
calculation is increased by the interest expense on the bonds.
If convertible preferred stock is dilutive, the convertible preferred
dividends must be added back to the numerator to calculate diluted
The denominator in the basic EPS equation contains the number of shares
of common stock issued, weighed by the days that the shares have been
outstanding.
convertible bonds are dilutive, interest expense multiplied by (1-
tax rate) must be added back to the numerator to calculate diluted
Bao Corp. has a permanently impaired asset. The difference between
its carrying value and the present value of its expected cash flows
should be written down immediately and:
reported as an operating loss.
charged directly against retained earnings.
reported as a non-operating loss in other comprehensive income.
Impairment
writedowns are reported losses “above the line” and are included in
income from continuing operations.
At the end of its last fiscal year, Bao Corp. reported retained earnings
of $215,000. This year, Bao reported year-end retained earnings of
$250,000 and net income of $20,000, paid received dividends of $5,000,
paid interest expense of $5,000, and received dividends of $5,000.
Bao’s other comprehensive income for this year is closest to:
retained earnings increased by 250,000 – 215,000 = 35,000 and net
income less dividends paid was 20,000 – 5,000 = 15,000, the difference,
35,000 – 15,000 = 20,000, must have been other comprehensive income.
Dividends received and interest paid are both included in net income.
In actual accounting, the matching principle states that:
an entity should recognize revenue only when received and expenses
only when they are paid.
transactions and events producing cash flows are allocated only to
time periods in which the cash flows occur.
expenses incurred to generate revenue are recognized in the same time
period as the revenue.
matching principle holds that expenses should be accounted for in
the same performance measurement period as the revenue they generate.
Which of the following statements about revenue recognition methods
is most accurate?
The completed contract method under U.S.GAAP recognizes long-term
contract revenue only as each phase of production is complete.
The percentage of completion method recognizes profit corresponding
to the costs incurred as a proportion of estimated total costs.
The installment method recognizes sales when cash is received, but
no profit is recognized until cash collected exceeds cost.
description of the percentage-of-completion method is accurate. The
completed contract method under U.S.GAAP recognizes revenue only when
the entire project is complete. The installment method recognizes
profit in proportion to cash collected. he entire projuect is
complete. the s the revenue regerat
A company changes from an incorrect method of accounting to an acceptable
one. Which of the following statements about his change is most accurate?
It is treated retrospectively and requires restatement of all prior
period results that are presented in the current financial statements.
If the change is voluntary, it is a change in accounting principle
and is reported below the line net of taxes.
If the change is mandated by a new accounting standard, it is an unusual
or infrequent item and is reported as a separate line item in net
income for continuing operating.
is the correct treatment of this change. The company must disclosure
the nature of the error and its effect on net income and restate any
prior period results that are presented in the current financial statements.
An analyst gathered the following data about a company:
company had 500,000 shares of common stock outstanding for the entire
company’s beginning stock price was $40, its ending price was $60,
and its average price over the year was $50.
company has 120,000 warrants outstanding for the entire year.
warrant allows the holder to buy one share of common stock at $45
per share.
many shears of common stock should the company use in computing its
diluted earnings per share?
occurs since the exercise price for the warrants ($45) is less than
the average market price for the shares ($50). The incremental number
of shares outstanding is found from:
x # warrants
of shares to use in diluted EPS calculation
500,000+12,000=512,000
Which of the following statements about dilutive securities is least
A simple capital structure is one that contains only common stick
and antidilutive securities.
A dilutive security is one that will case EPS to decrease if it is
converted into common stock.
Warrants with exercise prices less than the current stock price can
be antidilutive.
simple capital structure has only common stock or only common stock
and nonconvertible stock. It contains no securities that could ever
become or create common stock, even antidilutive ones. Whether warrants
are antidilutive depends on the average stock price over the reporting
period, not the value at the reporting date.
As of January 1, a company had 22,500 $10 par value commons shares
outstanding. On July 1, the company repurchased 5,000 shares. The
company also has 11,000, 10%, $100 par value preferred shares. If
the company’s net income is $210,000, its diluted earnings per share
is closest to:
this company has a simple capital structure, basic and diluted EPS
are equal.
numerator equal net income-preferred dividends
=210,000-(11,000shares
x 0.10dividend x 100 par)
=210,000-110,000=100,000.
weighted average shares outstanding
=22,500-(5,000
shares repurchased x 0.5 midyear)
=22,500-2,500=20,000.
basic EPS = diluted EPS=100,000/20,000=$5per share.
Which of the following statements about the appropriate revenue recognition
method to use under U.S.GAAP, given the status of completion of the
earning process and assurance of payment, is least accurate?
completed contract method when the firm cannot reliably estimate the
outcome of the project.
percentage-of-completion method when ultimate payment is reasonably
assured and revenue and costs can be reliably estimated.
installment method when collectability of payments for a sale can
be reasonably estimated.
installment method should be used when future cash collection cannot
be reasonably estimated.
An analyst gathers the following data about a company:
·&&&&&&&& The
company had 1 million shares of common stock outstanding for the entire
·&&&&&&&& The
company’s beginning stock price was $50, its ending price was $70,
and its average price was $60.
·&&&&&&&& The
company had 100,000 warrants outstanding for the entire year. Each
warrant allows the holder to buy one share of common stock at $50
per share.
many shares of common stock should the company use in computing its
diluted EPS?
A.&&& 1,100,000.
B.&&&& 1,083,333.
C.&&&& 1,016,667.
the Treasury stock method:
1: determine the number of common shares created if the warrants are
exercised = 100,000.
2: calculate the cash inflow if the warrants are exercised:
(100,000)($50
per share)=$5,000,000.
3: Calculate the number of shares that can be purchased with these
funds using the average market price ($60 per share):
5,000,000/60=83,333
4: Calculate the net increase in common shares outstanding from the
exercise of the warrants:
100,000-83,333=16,667.
5: Add the net increase in common shares from the exercise of the
warrants to the number of common shares outstanding for the entire
1,000,000+16,667=1,016,667
A company reports a gain of EUR100,000 on the sale of an asset and a
loss of EUR100,000 due to foreign currency translation adjustment. Which
of these items will be included in the company’s comprehensive income?
Both of these items are include in comprehensive income.
Neither of these items is include in comprehensive income.
Only one of these items is include in comprehensive income.
items are included in comprehensive income. Comprehensive income includes
all items that are included in net income are also included in comprehensive
income. The gain on sale is reported in net income. The foreign currency
translation loss is taken directly to owners’ equity.
Which of the following items for a financial services company is least
likely to be considered an operating item on the income statement?
Interest income.
Financing expenses.
Income tax expense.
a financial services company, interest income, interest expense, and
financing expense are likely considered operating activities. For
both financial and nonfinancial companies, income tax expense is a
non-operating item that is reported within “income from continuing
operating” as opposed to “operating profit” as with the other answer
considered an operating item.
Which of the following statements about nonrecurring items is most
The correction of an accounting error is reported net of taxes below
extraordinary items on the income statement.
Discontinued operations are classified as unusual or infrequent and
are reported as a component of net income from continuing operations.
Uninsured losses from earthquakes and expropriations by foreign governments
can be classified as extraordinary items under U.S.GAAP but not under
are examples of items that are typically treated as extraordinary
under U.S.GAAP. There is no provision for accounting for an item as
extraordinary under IFRS.
is incorrect. Accounting errors are corrected with prior-period adjustments,
which are made by restating results for any prior periods that are
presented in the current financial statements.
is incorrect. Discontinued operations are not classified as unusual
or infrequent items and are reported (net of taxes) after net income
from continuing operations but before net income.
Bao Company has the following changes in its stock:
company had 2 million shares outstanding on December 31, 2011.
March 31, 2012, the company paid a 10% stock dividend.
June 30, 2012, the company sold $10 million face value of &% convertible
debentures, convertible into common at $5 per share.
September 30, 2012, the company issued and sold 100,000 shares of
common stock.
company should compute its 2012 basic EPS based on:
A.&&& 2,225,000
B.&&&& 2,250,000
C.&&&& 3,225,000
EPS does not consider potential dilution from convertible bonds.
shares =2,000,000x12=24,000,000
dividend=200,000x12=2,400,000
shares =100,000x3=300,000
==2,225,000
Alternatively,
2 million(1.1)+(1/4)(100,000)=2.225 million.
When a used delivery truck is sold, the gain or loss on disposal is
most accurately stated as:
fair market value – book value.
selling price – original cost – accumulated depreciation.
selling price – original cost + accumulated depreciation.
gain (loss) on disposal is the amount by which the selling price exceeds
(is less than) book value.
value= original price-accumulated depreciation.
gain or loss=selling price-(original price- accumulated depreciation),
or selling price – original costs+ accumulated depreciation.
A firm that reports under IFRS is producing under a long-term contract
for which it cannot measure the outcome reliably. In the first of
the contract, the firm has spent EUR300,000 and collected EUR200,000 in
cash. What amounts related to this contract should the firm recognize
on its income statement for the year?
Revenue of EUR300,000, expenses of EUR300,000, and no profit.
No revenue, expenses, or profit until the contract is completed.
Revenue of EUR200,000, expenses of EUR300,000, and a loss of EUR100,000.
IFRS, if the outcome of a long-term contract cannot be estimated reliably,
the firm should expense costs when incurred, recognize revenue to
the extent of the costs, and recognize profit only when the contract
is complete.
During 2012, Bao Inc. reported net income of $15,000 and had 2,000
shares of common stock outstanding for the entire year. Bao also had
2,000 shares of 10%, $50 par value preferred stock outstanding during
2012. During 2009, Bao issued 100, $1,000 par, 6% bonds for $100,000.
Each of these is convertible to 50 shares of common stock. Bao’s tax
rate is 40%. Assuming these bonds are dilutive, 2012 diluted EPS for
Bao is closest to:
100(1,000)(6%)(1-0.4)=$3,600;
Convertible
debt shares=50(100)=5,000
Which of the following statements about the calculation of earnings
per share (EPS) is least accurate:
Shares issued after a stock split must be adjusted for the split.
Options outstanding may have no effect on diluted EPS.
Reacquired shares are excluded from the computation from the date
of reacquisition.
issued post-split need not be adjusted for the split as they are already
“new” shares. Options with an exercise price greater than the average
share price do not affect diluted EPS.
Bao Company has 1,000,000 warrants outstanding at the beginning of
the year, each convertible into one share of stock with an exercise
price of $50. No new warrants were issued during the year. The average
stock price during the period was $60, and the year-end stock price
was $45. What adjustment for these warrants should be made, under
the treasury stock method, to the number of shares used to calculate
diluted earnings per share (EPS)?
EPS uses average price. Since the average price is greater than the
exe4rcise price, the warrants are dilutive.
x1,000,000=166,667.
A software company holds a number of marketable securities as investments.
For the most recent period, the company reports that the market value
of its securities held for trading decreased by $2 million and the
market value of its securities available for sale increased in value
by $3 million. Together, these changes in value will:
reduce net income and shareholders’ equity by $2 million.
increase shareholders’ equity by $1 million and have no effect on
net income.
reduce net income by $2 million and increase shareholders’ equity
by $1 million.
Unrealized
gains and losses on securities held for trading are included in net
income. Unrealized gains and losses on securities available for sale
are not reported in net income but are included in comprehensive income.
Net income will show a $2 million loss from the securities held for
trading. Shareholders’ equity will reflect this loss as well as the
$3 million unrealized gain from securities available for sale, for
a net increase of $1 millions.
Analysts reviewing Amber Inc.’s and Bold Inc.’s long-term contracting
activities observe that Amber’s contracts are being accounted for
under the percentage-of-completion method while Bold’s are being accounted
for under the completed contract method. This difference is least
likely to affect the two companies’:
income statement.
statements of cash flows.
assets on the balance sheets.
flows are no different under the percentage-of-completion method compared
with the completed-contract method. Income statement and balance sheet
accounts will differ between the two firms.
Which of the following statements about types of nonrecurring items
under U.S.GAAP is least accurate?
Unusual or infrequent items are included in income from continuing
operations.
Extraordinary items are unusual and infrequent items that are reported
net of taxes and included in nonrecurring income from continuing operations.
Discontinued operations are reported net of taxes below income from
continuing operating.
Extraordinary
items are unusual and infrequent items that are reported separately,
net of tax, after net income continuing operating.
Bao Company has the following sequence of events regarding its stock:
·&&&&&&&& The
company had 1,000,000 shares outstanding at the beginning of the year.
·&&&&&&&& On
June 30, the company declared and issued a 10% stock dividend.
·&&&&&&&& On
September 30, the company sold 400,000 shares of common stock at par.
number of shares that should be used to compute basic earnings per
share at year end is:
A.&&& 1,000,000.
B.&&&& 1,100,000.
C.&&&& 1,200,000.
shares of CS
1,000,000x12
12,000,000
100,000x12
shares of CS
shares of CS
dividends are assumed to have been outstanding since the beginning
of the year.
Consider a manufacturing company and a financial services company.
Interest expense is most likely classified as a non-operating component
of income for:
both of these companies.
neither of these companies.
only one of these companies.
expense is shown as a non-operating component of net income for a
manufacturing company but would typical be classified as an operating
expense for a financial services company.
Financial analyst, Zhan Wang, gathered the following data about a
·&&&&&&&& 1,000
common shares are outstanding (no change during the year).
·&&&&&&&& Net
income is $5,000.
·&&&&&&&& The
company paid $500 in preferred dividends.
·&&&&&&&& The
company paid $600 in common dividends.
·&&&&&&&& The
average market price of their common stock is $60 for the year.
·&&&&&&&& The
company had 100 warrants (for one share each) outstanding for the
entire year, exercisable at $50.
company’s diluted earnings per share is closest to:
A.&&& $4.42.
B.&&&& $4.55.
C.&&&& $4.83.
warrants are dilutive because their exercise price is less than the
average market price.
issued to warrant holders = 100
generate cash of 100 x 50 = $5,000
Repurchased
shares =&=
new shares created = 100 -83 = 17
Alternatively, &x
EPS =&= =$4.42
Which of the following items would affect owners’ equity and also
appear on the income statement?
Dividends paid to shareholders.
Unrealized gains and losses on trading securities.
Unrealized gains and losses on available-for-sale securities.
Unrealized
gains and losses from trading securities are reflected in the income
statement and affect owners’ equity.
is incorrect. Dividends paid to shareholders reduce owners’ equity
but not net income.
is incorrect. Unrealized gains and losses from available-for-sale
securities are included in other comprehensive income. Transactions
included in other comprehensive income affect but not net income.
For which of the following balance sheet items is a change in market
value most likely to affect net income?
Debt securities issued by the firm.
Debt securities that the firm intends to hold until maturity.
Securities held with the intent to profit over the short term.
Securities
held with the intent to profit over the short term are classified
as trading securities, and changes in their values are reflected in
their balance sheet values and also reported on the income statement.
and B are incorrect. Debt securities issued by the firm, and debt
securities that the firm intends to hold until maturity, are both
reported at amortized cost, not market value. Debt and equity securities
that the firm does not expect to hold to maturity or to sell in the
near term are marketed to market on the balance sheet, but unrealized
gains and losses do not affect the income statement.
During the fourth quarter of the current year subject retail company
reported the following:
·&&&&&&&& $5,450,000
in credit sales, with $2,000,000 of cash collected during the quarter
in connection with these credit sales. All sales were final with no
uncertainties remaining.
·&&&&&&&& The
shipment of $750,000 in merchandise on consignment to a local specialty
retailer. This merchandise can be returned within 60 days for a full
refund is not sold.
·&&&&&&&& $1,100,000
in cash sales during the quarter. All sales were final with no expense
uncertainties remaining.
the accrual method, the amount of revenue to be recognized for the
specific transactions listed during the quarter would be closest to:
$5,300,000.
$6,550,000.
$7,300,000.
accrual method, all credit sales in the first transaction would be
recognized as revenue earned (earnings process complete and no uncertainties
remaining), despite only $2,000,000 in cash being collected from these
sales. In the second transaction, no revenue would be recognized under
the accrual method given that the consignment and the right of a return
of all merchandise within 60 days means the revenue and earnings recognition
process hasn’t been completed (a consignment is not really a sale).
In the last transaction, the cash sales would all be recognized as
revenue since the earnings process has been completed and no uncertainties
= $5,450,000 + $1,100,000 = $6,550,000
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