Question :
41.Changes in accounting methods must be disclosed in three prominent : 1241758
41.Changes in accounting methods must be disclosed in three prominent places. These are
a.the auditor’s report, financial statement notes, and the balance sheet.
b.financial statement notes, the income statement, and the auditor’s report.
c.the balance sheet, the income statement, and the statement of cash flows.
d.notes to financial statements, the management letter, and the income statement.
43.Makar Corporation reported net income before extraordinary items and taxes of $200,000 for the year 2015. During 2015, the average number of common shares outstanding was 35,000. Basic net earnings per share for 2015 are reported to be only $2.00. Makar’s income tax rate is 30%. How much was Makar’s extraordinary gain or loss (before tax) from a major earthquake? The earthquake was the only item that was reported net of tax in the income statement for 2015.
a.$70,000.
b.$100,000.
c.$130,000.
d.none of the above
44.Anderson Industries has the following transactions reported in the financial statements:
1.Income effect due to changing from the double-declining balance method to the straight-line method of depreciation.
2.Collection of accounts receivable.
3.Purchase of an insurance policy on December 31 that provides coverage for the following year.
4.Accrued wages earned by the employees.
5.Estimated uncollectible accounts receivable using the aging method.
6.Recognized a gain on the sale of plant equipment.
Which of the above transactions would be considered as “usual and frequent” for income statement purposes?
a. Transactions 1, 2, 3, 4, & 5
b. Transactions 4 & 5
c. Transactions 4, 5 & 6
d. All transactions 1 through 6
45.Anderson Industries has the following transactions reported in the financial statements:
1.Income effect due to changing from the double-declining balance method to the straight-line method of depreciation.
2.Collection of accounts receivable.
3.Purchase of an insurance policy on December 31 that provides coverage for the following year.
4.Accrued wages earned by the employees.
5.Estimated uncollectible accounts receivable using the aging method.
6.Recognized a gain on the sale of plant equipment.
Which of the above transactions would be considered as “unusual or infrequent” for income statement purposes?
a. Transactions 1, 5, & 6
b. Transactions1, 3, & 6
c. Transaction 6
d. All transactions 1 through 6
46.Damron Inc. has the following transactions reported in the financial statements:
1.Recognized a loss when the government expropriated land to build a bridge.
2.Declared a dividend valued at $100,000.
3.A lender covenant required the company to appropriate a portion of retained earnings.
4.Received dividends on stocks held as short-term investments. The dividends were declared and paid on the same day.
5.Recognized the cost of inventory sold during the year under the periodic method.
6.The company paid rent for the current year.
Which of the above transactions would be included on the company’s statement of shareholders’ equity?
a. Transactions 2 & 4
b. Transactions 1, 2, 3, & 4
c. Transactions 2 & 3
d. All transactions 1 through 6
47.Damron Inc. has the following transactions reported in the financial statements:
1.Recognized a loss when the government expropriated land to build a bridge.
2.Declared a dividend valued at $100,000.
3.A lender covenant required the company to appropriate a portion of retained earnings.
4.Received dividends on stocks held as short-term investments. The dividends were declared and paid on the same day.
5.Recognized the cost of inventory sold during the year under the periodic method.
6.The company paid rent for the current year.
Which of the above transactions would be considered as “usual and frequent” for income statement purposes?
a. Transactions 2, 4, 5, & 6
b. Transactions 2 through 6
c. Transactions 4, 5, & 6
d. Transactions 5 & 6
48.Damron Inc. has the following transactions reported in the financial statements:
1.Recognized a loss when the government expropriated land to build a bridge.
2.Declared a dividend valued at $100,000.
3.A lender covenant required the company to appropriate a portion of retained earnings.
4.Received dividends on stocks held as short-term investments. The dividends were declared and paid on the same day.
5.Recognized the cost of inventory sold during the year under the periodic method.
6.The company paid rent for the current year.
Which of the above transactions would be considered as “unusual or infrequent” for income statement purposes?
a. Transaction 1
b. Transaction 3
c. Transaction 4
d. None of these transactions
49.Damron Inc. has the following transactions reported in the financial statements:
1.Recognized a loss when the government expropriated land to build a bridge.
2.Declared a dividend valued at $100,000.
3.A lender covenant required the company to appropriate a portion of retained earnings.
4.Received dividends on stocks held as short-term investments. The dividends were declared and paid on the same day.
5.Recognized the cost of inventory sold during the year under the periodic method.
6.The company paid rent for the current year.
Which of the above transactions would be considered as “unusual and infrequent” for income statement purposes?
a. Transactions 1 & 4
b. Transaction 1
c. Transactions 1 & 3
d. None of these transactions
50.Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company’s dividends in any one year. The 2015 income statement data for the company is as follows:
Net sales
$840,000
Less: Cost of goods sold
500,000
Gross profit
$340,000
Selling and administrative expenses
120,000
Net operating income
$220,000
Gain on sale of securities
24,000
Interest expense
(4,000)
Net income from continuing operations before tax
$240,000
Less: Income tax
51,200
Net income from continuing operations
$188,800
Extraordinary gain (net of tax)
22,000
Net income before change in accounting principle
$210,800
Income effect due to change in accounting principle
52,000
Net income
$262,800
What is the maximum amount of dividends Sunrise can pay if the covenant associated with the credit line is expressed as 20 percent of net income?
a. $55,000
b. $60,000
c. $52,560
d. $53,700
Solution:
Net income
Maximum Dividend=20% ? $262,800
=$52,560
