Question

Net income (in millions) $175 Preferred stock dividends (in millions) $25 Common shares outstanding (in millions) 250 Stock price $10.00

111) What is earnings per share?

A) $0.60.                          B) $0.70.                          C) $0.50.                          D) $0.05.

112. ABC purchased a piece of equipment by paying $5,000 cash. They also incurred a shipping cost of

$400 to get the equipment to its factory. The fair value of this equipment is $7,000. For what amount should ABC record the equipment?

A) $7,000.                        B) $7,400.                        C) $5,000.                        D) $5,400.

113. ABC reports sales of $100 million. Accounts receivable at the beginning and end of the year are $6 million and $9 million, respectively. What is the amount of cash received from customers?
     1. $100 million.               B) $109 million.               C) $97 million.                 D) $103 million.

114. Earnings per share (EPS)
     1. Is useful in comparing earnings performance across companies.
     2. Is not useful in comparing earnings performance across companies or in comparing earnings performance for the same company over time.
     3. Is useful in comparing earnings performance for the same company over time.
     4. Is useful in both comparing earnings performance across companies and in comparing earnings performance for the same company over time.

115. A contingent gain can sometimes be disclosed in a footnote
     1. True                                                                      B) False

Answer 1

111. Answer- (A). $0.60

Explanation-

EPS = ( Net Income for common stockholders÷ Common shares outstanding)

Net Income for common stockholders=

(Net income - preferred stock dividend)

=$175-25

=$150.

Accordingly, EPS = $150÷ 250

= $0.60

112.Answer- (D). $5,400.

Explanation-

An entity shall record the asset at the purchase price. Further, any cost which is necessary for bringing such asset to the present location and condition necessary for it to put in usable condition is part of the cost of such asset.

Thus, purchase price as well as shipping cost to the factory, both will form part of cost.

So, recorded price= $5,000+400=$5,400.

113. Answer-(C).$97

Explanation-

Amount received from customer=

(Account receivable at beginning+sales)- Account receivable at end.

=($6+100)-9

=$97

114. Answer- (D). Is useful in both comparing earnings performance across companies and in comparing earnings performance for the same company over time.

Explanation-

Earnings per share (EPS) is the portion of a company's profit allocated to each share of common stock. EPS serve as an indicator of a company's profitability. Company uses it for comparison between other companies and with the other years of self profitability.

115.(B). False

Explanation-

A contingent gain becomes recordable only when the realization of cash flows associated with it becomes relatively certain.

Only contingent loss should be shown at the footnote of the balance sheet.