ACCT 3432 and ACCT 5134 Exam 3, Fall 2013

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1ACCT 3432 and ACCT 5134Exam3,Fall2013First NameSuggestedSolutionLast NameThe ThomasInstructions:1.You have120minutes to complete thisexam.2.The exam has 11pages, including thiscover page. Check to make sure you have all 11pages.3.There are 20multiple choices and 3 problem solvingquestions. Eachmultiple choiceproblemis worth3 points and maximum points for each problem solving question are shownat each question.4.Closed notes, closed books. Only theexam, writing utensils, and a calculator are permittedon your desk.5.Pleasewriteyour answersfor multiple choicesCAREFULLYontheANSWER SHEET.6.Please write answersCLEARLYon the exam for problem solving questions. If I cannot readthem, I willNOT GIVE YOU ANY PARTIAL CREDIT.7.DO NOT START EXAM UNTIL I TELL YOU TO BEGIN.ANSWER SHEETQuestionNo.123456789101112AnswerCCDCCBABBDAAQuestionNo.1314151617181920MultiProb.TotalAnswerBABDDBAD

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2Part I. Multiple Choices:1.The Thomas Company's net income for the year ended December 31 was $30,000. Duringthe year, Thomas declared and paid $3,000 in cash dividends on preferred stock and $5,250in cash dividends on common stock. At December 31, 36,000 shares of common stock wereoutstanding, 30,000 of which had been issued and outstanding throughout the year and 6,000of which were issued on July 1. There were no other common stock transactions during theyear, and there is no potential dilution of earnings per share. What should be the year's basicearnings per common share of Thomas, rounded to the nearest penny?a.$0.66b.$0.75c.$0.82d.$0.91ANS. CBasic earnings per common share=(Net income-cash dividends on preferred stock) /weighted-average number of common shares=($30,000-$3,000)/(30,000*6/12+36,000*6/12)=$0.822.On December 31, 2013, Overachiever, Inc. had300,000 shares of common stock issued andoutstanding. Overachiever issued a 10 percent stock dividend on June 1, 2014. On November1, 2014, Overachiever reacquired 30,000 shares of its common stock and recorded thepurchase using the cost method of accounting for treasury stock. What number of sharesshould be used in computing basic earnings per share for the year ended December 31, 2014?a.310,000b.314,167c.325,000d.330,000ANS.CEventPeriodSharesFractionof YearAdjustmentWeightedAverageSharesBeginningJan 1-June 1300,0005/121.1137,500Stock Dividend(10%)June 1–Nov 1330,0005/121137,500RepurchaseNov 1–Dec31300,0002/12150,000Total325,000

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33.When computing diluted EPS for a company with a complex capital structure, what is thedenominator in the computation?a.Number of common shares outstanding at year-endb.Weighted-average number of common shares outstandingc.Weighted-average number of common shares outstanding plus allother potentially antidilutive securitiesd.Weighted-average number of common shares outstanding plus allother potentially dilutive securitiesANS. D4.On January 2, 2013, Worley Co. issued at par $60,000 of 5 percent bonds convertible, in totalinto 5,000 shares of Worley’s common stock. No bonds were convertible during 2013.Throughout 2013Worley had 5,000 of common stock outstanding. Worley’s net income was$6,200. Worley’s income tax rate is 40%. No potentially dilutive securities other thanconvertible bonds were outstanding during 2013. Worley’s diluted earnings per share for2013would bea.$0.78b.$0.62c.$0.80d.$0.90ANS.CDiluted EPS= (Net income+ Interest savings after tax)/ weighted avg. no. ofoutstanding Shares= [$6,200 + (5%*$60,000)*(1-0.40)]/ (5,000 shares + 5,000 shares)= ($6,200+$1,800) / 10,000 shares = $0.80 per share5.When we compute earnings per share (EPS) data, we assume conversion of convertiblesecurities at thea.Ending of the earliest period reported(regardless of time of issuance).b.Middle of the earliest period reported (regardless of time of issuance).c.Beginning of the earliest period reported (or at time of issuance, if later).d.Beginning of the earliest period reported (regardless of time of issuance).ANSCUse the following information for questions6and7.At December 31, 2013, Lefton, Inc. had400,000 shares of common stock outstanding. On April1, 2014, an additional 140,000 shares of common stock were issued for cash. Lefton also had$3,000,000 of 8% convertible bonds outstanding at December 31, 2013, which are convertibleinto 120,000 shares of common stock. The bonds are dilutive in the 2014EPS computation. Nobonds were issued or converted into common stock during 2014.

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