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Accounting For Equities Question Paper

Accounting For Equities

Course:Bachelor Of Commerce

Institution: University Of Nairobi question papers

Exam Year:2012

UNIVERSITY OF NAIROBI
SCHOOL OF BUSINESS
DAC 202 ACCOUNTING FOR EQUITIES
Choose the correct answer(s) by writing the correct letter

1. With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?
a. Common stock, preferred stock, and convertible securities outstanding in lots of even thousands
b. Earnings derived from one primary line of business
c. Ownership interest consisting solely of common stock
d. None of these

2. In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the
a. preferred dividends in arrears.
b. preferred dividends in arrears times (one minus the income tax rate).
c. annual preferred dividend times (one minus the income tax rate).
d. none of these.

3. In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are
a. weighted by the number of days outstanding.
b. weighted by the number of months outstanding.
c. considered outstanding at the beginning of the year.
d. considered outstanding at the beginning of the earliest year reported.

4. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?
a. Decrease and no effect
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease

5. Due to the importance of earnings per share information, it is required to be reported by all
Public Companies Nonpublic Companies
a. Yes Yes
b. Yes No
c. No No
d. No Yes

6. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is
Dilutive Anti-dilutive
a. Yes Yes
b. Yes No
c. No Yes
d. No No

7. When computing diluted earnings per share, convertible bonds are
a. ignored.
b. assumed converted whether they are dilutive or anti-dilutive.
c. assumed converted only if they are anti-dilutive.
d. assumed converted only if they are dilutive.

8. Dilutive convertible securities must be used in the computation of
a. basic earnings per share only.
b. diluted earnings per share only.
c. diluted and basic earnings per share.
d. none of these.

9. In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?
a. Annual preferred dividend
b. Annual preferred dividend times (one minus the income tax rate)
c. Annual preferred dividend times the income tax rate
d. Annual preferred dividend divided by the income tax rate

10. In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would
a. fairly present diluted earnings per share on a prospective basis.
b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.
c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share.
d. be anti-dilutive. (15 marks)

(b) JETECH Company had net income (30% tax rate) of sh.1, 400,000 for the year ended 30th November 2011, and an average number of shares outstanding during the year of 500,000 shares. The corporation issued sh.2, 000,000 par values of 10-year, 9% convertible bonds on January 1, 2009 at a sh.180, 000 discounts. The convertible bonds are convertible into 70,000 shares of common stock. Assume the company uses the straight-line method for amortizing bond discount.

Required
Compute the Basic and Diluted earnings per share data, excluding any notes if required.
(10 marks)

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