Accountancy Test Questions with Answers

The 20%/9% Bonds and Common Stock option does not generate as positive capital structure as 50%/50% option. Although EPS scores are the same for year nine, net income is reduced to 39,680 due to having to pay interest of 14,400 on bonds while the 50/50 option generates a net income of 49,049 and pays no interest on bonds and issues dividends. In year ten, both capital structures offer an EPS of .032 however the net income is 9,380 less than the 50/50 option. In years 11, 12, and 13, the 20%/9% Bonds and Common Stock option EPS and net income results decline while the EPS and net income results increase for the 50/50 option.

On October 31, the stockholders' equity section of Omar Company consists of common stock $600,000 and retained earnings $900,000. Omar is considering the following two

In the case response, Peterson has clearly answered each part of the question and provided substantial backup for required questions. To add to the retained earnings portion of the shareholders equity section; it can classified as appropriated or un-appropriated retained earnings. Appropriated retained earnings comprise that portion of retained earnings that is not available to distribute as dividends (Schroeder, Clark, & Cathey, 2014, p. 535). These restrictions develop when the Board of Directors designate special uses for these funds. Lately, many large company’s have been re-purchasing their shares to improve to financial ratios or because they believe their company’s share prices under values the corporation. If a company chooses

In accordance with the agreement between the lender and Ace Inc., the payment of dividends cannot exceed the net income after taxes in correlation to the beginning of the contract. It is noted that the client is complying with said agreement that was put into effect. Note: The client can supply information that there is an actual retained earnings restriction because this can demonstrate misinformation to the auditor. Therefore, since the auditor was under the assumption that there was no restriction, it should be made apparent within the disclosure

You may not use any notes, books, cell phones, other media devices or programmable calculators while

In the accounting field there is always a question whether it’s alright to retain paid in capital and separate it from earn capital. Accountants today have to be really be careful especially with the fact that so many accounting laws are changing in the United States. In this paper I will be explaining why it is important to keep paid-in capital and earned capital separate. I will also be explaining whether paid-in capital is more important that earned capital, or vice-versa. Following that, I will compare basic earnings per-share against diluted earnings per-share and which is more important to investors.

c. What is the value of your share of the firm’s equity in cases (a) and (b)?

Discuss and exemplify each of the significant terms used above through a list of meanings a non-accountant would understand. a.

Explains the changes in the shareholders’ equity items (Common Stock and Retained Earnings) from one year to the next.

Dividends are subjected to higher tax rate compare to capital gain increased due to share buy-back. This discourages shareholders from desire to receive high dividends in place of higher capital gain as share values increase. A comparison is made below between the proposed capital structure and dividend policy.

Preemptive right – A privilege extended to select shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering

○ Declaration date (board of directors approves the DVD and corporation creates a "dividend liability") - Dr. Retained Earning (-E), Cr. DVD payable (+L)

Whether or not (and the extent to which) dividends would be paid from the earnings of a public limited company depends on the dividend policy adopted by its management. In early corporate finance, dividend policy referred to a corporation’s choice of whether to pay its shareholders a cash dividend or to retain its earnings. The policy also addressed the frequency of such payments of dividends (whether annually, semiannually or quarterly) and how much the company should pay if it decides to do so. The optimum dividend policy of a firm depends on investor’s desire for capital gains as opposed to dividends, their willingness to forgo present dividends for future returns, and their perception of the risk associated with postponement of returns.

15. “…Income available to common shareholders is defined as net income (or income from continuing operations) minus preferred dividends paid or declared and any current year preferred dividends on cumulative preferred stock not declared or paid. Companies that have a discontinued operation, extraordinary item, or cumulative effect of a change in accounting principle are to use income from continuing operations as the ‘control number’ in determining whether potential common shares are dilutive or antidilutive.” In the new standards, weighted average number of shares is the same as in the Opinion No. 15, with consideration of all stock sales, treasury stock transactions, securities exercised or converted during the period, and stock splits and stock dividends, retroactively applied. If the entity only has common stock outstanding and no other securities that can result in the issuance of common shares, it will have a simple capital structure and only need to report basic per share amounts during the period. In SFAS No. 128, primary earnings per share is eliminated and, as a result, those tests for common stock equivalency are eliminated too which are the "five-year test" and "three-month rule" for options and warrants, and the "five-year test" and "effective-yield test" for convertible securities. The "three-percent rule or method" which determines when primary or fully diluted earnings

During this week of study we covered distributions to shareholders in the form of dividends and repurchases. We also learned all about capital structure. Capital structure is how a firm finances its overall operations and growth by using different sources of funds (Investopedia, 2014). We know that when analyzing capital structure, a portion of the company’s short term and long term debt is taken into consideration. With that in mind and all the information given this week we were presented with end of chapter questions. In this paper we will answer these questions in detail documenting the facts within.