Question 1 1. Which of the following


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Question 1 1. Which of the following would be classified as an extraordinary item? Answer A) A large gift given to the company. B) A loss from obsolete inventory. C) A loss from a natural disaster that affects the company at infrequent intervals. D) A loss from an enacted law that made inventory unsalable. Question 2 2. An example of a change in accounting principle is: Answer A) Changing the estimated life of an asset from 3 to 5 years. B) Changing the estimated life of an asset from 5 to 3 years. C) Changing from LIFO to FIFO. D) Having a discontinued operation. Question 3 3. Diluted earnings per share is a hypothetical computation to warn stockholders what could happen if: Answer A) Loss contingencies turn out adversely. B) Convertible securities are converted into shares of common stock. C) Extraordinary losses were to recur. D) Consideration were given to the loss from operations discontinued during the current period. Question 4 4. A liquidating dividend: Answer A) Occurs when a corporation distributes shares of its own stock as a dividend, rather than cash. B) Occurs whenever a corporation distributes noncash assets as a dividend to its stockholders. C) Represents a distribution of a corporation’s profits to the stockholders. D) Represents a return of invested capital to a corporation’s owners, the stockholders. 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 …

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