812 / 10 = 481.2802 − 481 = 321 OR [(10 − 6) / 10] × 802 = 321QUESTI...

4, - UNDERSTANDING INCOME STATEMENTS 1 4, - UNDERSTANDING INCOME STATEMENTS 1 4, - UNDERSTANDING INCOME STATEMENTS 1 4, - UNDERSTANDING INCOME STATEMENTS 1
UNDERSTANDING INCOME STATEMENTS 1
4,812 / 10 = 481.2802 − 481 = 321 or [(10 − 6) / 10] × 802 = 321

Question #39 of 90

Question ID: 414091

Football Contractors, Inc., which reports under U.S. GAAP, has contracted to build a stadium for the City of Washburn. Thecontract price is $100 million and costs are estimated at $60 million. Costs are not assured, however, because there is a materialrisk, which Football Contractors has assumed, that ground water problems might slow construction and increase costs by asmuch as $40 million. In 2004, the first year of the agreement, Football Contractors, Inc. billed $30 million, received a $20 millionpayment, and incurred $15 million in costs. For 2004 Football Contractors, Inc. should recognize revenue from the City ofWashburn transaction in the amount of:غ A)$20 million.غ B)$30 million.ض C)$0.ExplanationUnder U.S. GAAP, the completed contract method is used when a reliable estimate of the total costs cannot be determined untilthe contract is finished. Because of the significant uncertainty surrounding the ground water costs, the completed contractmethod should be used in this transaction, and no revenue should be recognized in 2004 or any later year until the contract iscompleted or the cost uncertainty is resolved.

Question #40 of 90

Question ID: 414145

Which type of a capital structure contains no dilutive securities?Complex.Basic.Simple.A complex capital structure contains potentially dilutive securities such as options, warrants, or convertible securities. There is nobasic capital structure but there are basic earnings per share which does NOT consider the effects of any dilutive securities in thecomputation of EPS.

Question #41 of 90

Question ID: 414144

A firm with a capital structure consisting of only common stock and non-convertible bonds is said to have a:ض A)simple capital structure.non-diluted capital structure.غ C)straight capital structure.A simple capital structure is one that contains no securities that have the potential to dilute a firm's earnings per share. Forexample, convertible bonds, convertible preferred stock, options, and warrants have the potential to dilute earnings per shareupon conversion or exercise.

Question #42 of 90

Question ID: 414096

A video rental store with a large inventory of newly released movies is attempting to determine an appropriate method ofdepreciation for its movies for rental. As well, it is trying to determine an appropriate method of determining the cost of itsinventory of movies for sale. Which of the following treatments is most appropriate for the movies for rental and movies for sale?Movies for rental Movies for saleAccelerateddepreciation Last-in, first-outض B)Accelerateddepreciation First-in, first-outStraight-linedepreciation Last-in, first-outWith the movies for rental, a greater portion of the decrease in the value of newly released movies would reasonably be realizedin the first year, given the rapid rate of obsolescence in view of the large number of movies available. Therefore, depreciating thispool of assets by a greater amount in the first year using an accelerated depreciation method better approximates economicdepreciation than depreciating it straight line.With the movies for sale, there are two methods available for accounting as inventory. FIFO is appropriate for inventory that hasa limited shelf life and LIFO is appropriate for inventory that does not deteriorate with age. Because the movies have a verylimited shelf life and will greatly deteriorate in value with age, especially after the first year, FIFO is the most appropriate methodof accounting for the movies for sale.

Question #43 of 90

Question ID: 414196

The primary difference between basic EPS and diluted EPS is that:extraordinary items and discontinued operations are omitted from basic EPS but included in dilutedEPS.proprietors and partners report basic EPS but corporations report diluted EPS.diluted EPS includes the potential effects of convertible securities while basic EPS does not.The primary difference between basic EPS and diluted EPS is that diluted EPS includes the potential effects of convertible securities whilebasic EPS does not.

Question #44 of 90

Question ID: 414200

Protocol, Inc.'s net income for 2005 was $4,800,000. Protocol had 800,000 shares of common stock outstanding for the entireyear. The tax rate was 40 percent. The average share price in 2005 was $37.00. Protocol had 5,000 8 percent $1,000 par valueconvertible bonds that were issued in 2004. Each bond is convertible into 25 shares of common stock. Protocol, Inc.'s basic anddiluted earnings per share for 2005 were closest to:Basic EPS Diluted EPS$6.00 $5.45$5.19 $4.92$6.00 $4.92Protocol's basic EPS (net income / weighted average common shares outstanding) was $4,800,000 / 800,000 = $6.00. DilutedEPS is calculated under the assumption that the convertible bonds were converted into common stock, and the bond interest netof tax was restored to net income. The common shares from the conversion of the bonds are added to the denominator of theequation. Protocol's Diluted EPS was [$4,800,000 + (5,000 × $1,000 × 0.08)(1 − 0.40)] / [800,000 + (5,000 × 25)] = $5.45.

Question #45 of 90

Question ID: 414219

An analyst prepares the following common-size income statements for Perez Company:20X1 20X2 20X3Sales 100% 100% 100%Cost of goods sold 50% 52% 53%Selling and administrative expense 16% 12% 9%Interest income 4% 4% 4%Pretax income 30% 32% 34%Income tax expense 15% 16% 17%Net income 15% 16% 17%Based only on this information, Perez's improving net profit margin is most likely a result of:improving gross margins.greater financial leverage.controlling operating expenses.The improvement in net profit margin from 15% to 17% appears to result mainly from the firm reducing selling and administrativeexpense from 16% of sales to 9% of sales, thus decreasing operating expenses from 66% to 62% of sales. Gross margin isdecreasing over this period because cost of goods sold is increasing as a percentage of sales. While financial leverage cannotbe determined directly from the income statement, the fact that interest expense is a constant percentage of sales suggestsfinancial leverage is stable.

Question #46 of 90

Question ID: 434275

The following information is for Trotters Diversified as of year-end:Average common shares outstanding of 5.0 million.Average market price for common stock of $35.00 per share.Net income of $9.0 million.Common stock dividends paid of $1.2 million.Tax rate of 40%.