Question 5 5. Leisure Attire Corporation discontinued Princess Fashions, its entire line of children’s clothing, in November of 2001. Prior to the disposal, Princess Fashions generated a loss of

Question 5

5. Leisure Attire Corporation discontinued Princess Fashions, its entire line of children’s clothing, in November of 2001. Prior to the disposal, Princess Fashions generated a loss of $300,000 (net of tax) for the period from January through the sale date. Because of the value of the real estate and machinery, there was a gain of $750,000 (net of tax) on the actual sale. How should this situation be reported in the financial statements of Leisure Attire for 2001?

Answer

A) $450,000 included in the 2001 income statement as an extraordinary item.

B) $300,000 loss included in income from operations and a $750,000 gain reported in the “discontinued operations” section of the income statement.

C) $450,000 adjustment to beginning retained earnings in the statement of retained earnings.

D) $450,000 gain in the “discontinued operations” section of the income statement.

Question 6

6. Chelsea Corporation’s financial statements for the current year include the following:

Income from continuing operations $ 520,000

Prior period adjustment (increase in prior year net

Income, net of taxes 90,000

Cash dividents paid to preferred stockholders 102,000

Gain from discontinued operations (net of taxes) 310,000

Cumulative effect of accounting change (reduction

In net income, net of tax benefit) 220,000

Extraordinary loss (net of tax benefit) 85,000

On the basis of this information, net income for the current year is:

Answer

A) $717,000.

B) $513,000.

C) $965,000.

D) $525,000.

Question 7

7. During the year 2002, Starlight Corporation suffered a $500,000 loss when its factory was destroyed in a flood. Assuming the corporate income tax rate is 32%, what amount will Starlight report as an extraordinary loss on its income statement for 2002? Assume floods are not common in this area.

Answer

A) $500,000

B) $340,000

C) $160,000.

D) Nothing, since this does not qualify as an extraordinary item.

Question 8

8. On January 1, 2002, Huga Corporation had 100,000 shares of $5 par value common stock outstanding. On March 31, 2002, Huga issued an additional 8,000 shares in exchange for a building. What number of shares will be used in the computation of basic EPS for the year 2002?

Answer

A) 100,000.

B) 108,000.

C) 106,000.

D) 102,000.

Question 9

9. Zanzibar, Inc., had 2,000 shares of $6 preferred stock $100 par, and 30,000 shares of common stock outstanding throughout 2002. In 2002, Zanzibar declared a dividend of $6 per share on its common stock. Compute earnings per share for 2002 if Zanzibar’s income statement showed net income of $240,000

Answer

A) $8.00 per share.

B) $6.00 per share.

C) $7.60 per share.

D) $1.60 per share.

Question 10

10. For the current year, Dewing Company reported basic earnings per share of $8 and fully diluted earnings per share of $3. The difference between these figures is attributable to outstanding shares of convertible preferred stock. If all this preferred stock had actually been converted into common stock at the beginning of the current year, Dewing Company would have reported only one earnings per share amount, which would have been:

Answer

A) $8.

B) $5.

C) $3.

D) Cannot be determined.

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