b. Changes in account balances of Gross Flowers during 2012 were as follows: Ass
ID: 2543520 • Letter: B
Question
b. Changes in account balances of Gross Flowers during 2012 were as follows:
Assets $400,000 (increase)
Liabilities $150,000 (increase)
Capital stock $120,000 (increase)
Additional paid-in capital $110,000 (increase)
Assuming there were no charges to retained earnings other than dividends of $20,000, the net income (loss) for 2012 was
1. $(20,000).
2. $(40,000).
3. $20,000.
4. $40,000.
5. $60,000
c. Which of the following would be classified as an extraordinary item on the income
statement?
1. Loss on disposal of a segment of business.
2. Cumulative effect of a change in accounting principle.
3. A sale of fixed assets.
4. An error correction that relates to a prior year.
5. A loss from a flood in a location that would not be expected to flood.
d. Net income–noncontrolling interest comes from which of the following situations?
1. A company has been consolidated with our income statement, and our company owns less than 100% of the other company.
2. A company has been consolidated with our income statement, and our company owns 100% of the other company.
3. Our company owns less than 100% of another company, and the statements are not consolidated.
4. Our company owns 100% of another company, and the statements are not consolidated.
5. None of the above.
e. Which of the following will not be disclosed in retained earnings?
1. Declaration of a stock dividend
2. Adjustment for an error of the current period
3. Adjustment for an error of a prior period
4. Net income
5. Net loss
f. Bell Company has 2 million shares of common stock with par of $10. Additional paid- in capital totals $15 million, and retained earnings is $15 million. The directors declare a 5% stock dividend when the market value is $10. The reduction of retained earnings as a result of the declaration will be
1. $0.
2. $1 million.
3. $800,000.
4. $600,000.
5. None of the above.
g. The stockholders’ equity of Gaffney Company at November 30, 2012, is presented below.
Common stock, par value $5, authorized 200,000 shares, 100,000 shares issued and outstanding Paid-in capital in excess of par Retained earnings
$500,000
100,000
300,000
$900,000
On December 1, 2012, the board of directors of Gaffney Company declared a 5% stock dividend, to be distributed on December 20. The market price of the common stock was $10 on December 1 and $12 on December 20. What is the amount of the change to retained earnings as a result of the declaration and distribution of this stock dividend?
1. $0
2. $40,000
3. $50,000
4. $60,000
5. None of the above.
h. Schroeder Company had 200,000 shares of common stock outstanding with a $2 par value and retained earnings of $90,000. In 2010, earnings per share were $0.50. In 2011, the company split the stock 2 for 1. Which of the following would result from the stock split?
1. Retained earnings will decrease as a result of the stock split.
2. A total of 400,000 shares of common stock will be outstanding.
3. The par value would become $4 par.
4. Retained earnings will increase as a result of the stock split.
5. None of the above.
i. Which of the following is not a category within accumulated other comprehensive income?
1. Foreign currency translation adjustments.
2. Unrealized holding gains and losses on available-for-sale marketable securities.
3. Changes to stockholders’ equity resulting from additional minimum pension
liability.
4. Unrealized gains and losses from derivative instruments.
5. Extraordinary item.
Explanation / Answer
Note; There are more than 4 parts of this question, so as per rule I am answering first 4 parts of this question.
Question (b).
Answer is option (1) ($20000)
Explanation;
Net income (loss) for 2012 will be calculated as follow;
$400000 – ($150000 + $120000 + $110000) = $20000
As per information of the question, it is given that there were no charges to retained earnings other than dividends of $20,000, So net loss will be ($20000)
Question (C).
Answer is option (5) A loss from a flood in a location that would not be expected to flood.
Explanation;
Extraordinary items in the income statement refers to those items which are not parts of normal operation of the business activities. Hence as per question it is clear that A loss from a flood in a location that would not be expected to flood is an extra ordinary item because it is beyond the expectations of normal business activities.
Question (D).
Answer is option (1) A company has been consolidated with our income statement, and our company owns less than 100% of the other company.
Explanation;
Non-controlling interest comes into existence when a company owns less than 100% ownership in another company. If a company hold 100% ownership in another company then non-controlling interest can not come into existence. Apart from this income statement should be consolidated. Thus option (1) is correct answer.
Question (E).
Answer is option (2) Adjustment for an error of the current period.
Explanation;
Adjustment for an error of the current period is not disclosed in in retained earnings. So option (2) is correct answer. Followings items are disclosed in retained earnings;
· Declaration of a stock dividend
· Adjustment for an error of a prior period
· Net income
· Net loss
So correct answer is option (2).
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