ACCT 3432 and ACCT 5134 Exam 3 Fall 2013

Name: ACCT 3432 and ACCT 5134 Exam 3 Fall 2013
Brand: University of Houston
Price: 2 USD
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Author: Scarlett Carter

A solved Exam 3 for ACCT 3432 and ACCT 5134 from Fall 2013, covering key financial topics.

Scarlett Carter

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1
ACCT 3432 and ACCT 5134
Exam 3, Fall 2013
First Name Suggested Solution Last Name On December
Instructions:
1. You have 120 minutes to complete this exam.
2. The exam has 11 pages, including this cover page. Check to make sure you have all 11
pages.
3. There are 20 multiple choices and 3 problem solving questions. Each multiple choice
problem is worth 3 points and maximum points for each problem solving question are shown
at each question.
4. Closed notes, closed books. Only the exam, writing utensils, and a calculator are permitted
on your desk.
5. Please write your answers for multiple choices CAREFULLY on the ANSWER SHEET.
6. Please write answers CLEARLY on the exam for problem solving questions. If I cannot read
them, I will NOT GIVE YOU ANY PARTIAL CREDIT.
7. DO NOT START EXAM UNTIL I TELL YOU TO BEGIN.
ANSWER SHEET
Question
No. 1 2 3 4 5 6 7 8 9 10 11 12
Answer A D B D C C C B A D A B
Question
No. 13 14 15 16 17 18 19 20 Multi Prob. Total
Answer C B D A D B A B

2
Part I. Multiple Choices:
1. On December 31, 2013, Overachiever, Inc. had 500,000 shares of common stock issued and
outstanding. Overachiever issued a 10 percent stock dividend on June 1, 2014. On November
1, 2014, Overachiever reacquired 30,000 shares of its common stock and recorded the purchase
using the cost method of accounting for treasury stock. What number of shares should be used
in computing basic earnings per share for the year ended December 31, 2014?
a. 545,001
b. 524,167
c. 470,000
d. 421,667
ANS. A
Event Period Shares Fraction
of Year
Adjustment Weighted
Average
Shares
Beginning Jan 1- June 1 500,000 5/12 1.1 229,167
Stock Dividend
(10%)
June 1–Nov 1 550,000 5/12 1 229,167
Repurchase Nov 1 – Dec
31
520,000 2/12 1 86,667
Total 545,001
2. The Thomas Company's net income for the year ended December 31 was $30,000. During
the year, Thomas declared and paid $2,250 in cash dividends on preferred stock and $5,250
in cash dividends on common stock. At December 31, 40,000 shares of common stock were
outstanding, 34,000 of which had been issued and outstanding throughout the year and 6,000
of which were issued on July 1. There were no other common stock transactions during the
year, and there is no potential dilution of earnings per share. What should be the year's basic
earnings per common share of Thomas, rounded to the nearest penny?
a. $1.08
b. $0.95
c. $0.82
d. $0.75
ANS. D
Basic earnings per common share = (Net income - cash dividends on preferred stock) /
weighted-average number of common shares = ($30,000-$2,250) /
(34,000*6/12+40,000*6/12)=$0.75

3
3. On January 2, 2013, Worley Co. issued at par $40,000 of 5 percent bonds convertible, in total
into 5,000 shares of Worley’s common stock. No bonds were convertible during 2013.
Throughout 2013 Worley 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 than
convertible bonds were outstanding during 2013. Worley’s diluted earnings per share for
2013 would be
a. $0.62
b. $0.74
c. $0.81
d. $0.90
ANS. B
Diluted EPS = (Net income+ Interest savings after tax)/ weighted avg. no. of
outstanding Shares
= [$6,200 + (5%*$40,000)*(1-0.40)]/ (5,000 shares + 5,000 shares)
= ($6,200+$1,200) / 10,000 shares = $0.74 per share
4. When computing diluted EPS for a company with a complex capital structure, what is the
denominator in the computation?
a. Number of common shares outstanding at year-end
b. Weighted-average number of common shares outstanding
c. Weighted-average number of common shares outstanding plus all
other potentially antidilutive securities
d. Weighted-average number of common shares outstanding plus all
other potentially dilutive securities
ANS. D
5. When we compute earnings per share (EPS) data, we assume conversion of convertible
securities at the
a. 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).
ANS C
Use the following information for questions 6 and 7.
At December 31, 2013, Lefton, Inc. had 600,000 shares of common stock outstanding. On July 1,
2014, an additional 120,000 shares of common stock were issued for cash. Lefton also had
$5,000,000 of 8% convertible bonds outstanding at December 31, 2013, which are convertible
into 100,000 shares of common stock. The bonds are dilutive in the 2014 EPS computation. No
bonds were issued or converted into common stock during 2014.

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University

University of Houston

Subject

Accounting

ACCT 3432 and ACCT 5134 Exam 3 Fall 2013

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