Q&A Hero

Q: When a company issues stock to the public for the first time, the issuance is called a(n): A) initial public offering (IPO). B) first time issue (FTI). C) seasoned new issue (SNI). D) initial stock offering (ISO).

Q: Par value of a stock refers to the: A) issue price of the stock. B) value assigned to a share of stock in the corporate charter. C) market value of the stock. D) maximum selling price of the stock.

Q: If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan, your ownership percentage: A) remains the same because the company now has more assets. B) falls from 2.5% to 2%. C) remains the same because the company now has fewer liabilities. D) increases because the company now has more stock outstanding.

Q: Which number is potentially the largest? A) The number of shares authorized. B) The number of shares issued. C) The number of shares outstanding. D) The number of shares certified.

Q: Which of the following statements about issued and outstanding stock is correct? A) Outstanding stock includes all stock issued by a corporation. B) Issued stock equals the sum of outstanding stock and treasury stock. C) Issued stock is equal to authorized stock. D) Outstanding stock includes stock in the hands of investors, as well as treasury stock in the hands of the corporation.

Q: A company has 110,000 shares authorized, 50,000 shares issued, and 5,000 shares of treasury stock. How many shares are outstanding? A) 45,000 B) 155,000 C) 55,000 D) 145,000

Q: A corporate charter specifies that the company may sell up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. The current number of outstanding shares after these transactions have been accounted for is: A) 8 million shares. B) 20 million shares. C) 10 million shares. D) 9 million shares.

Q: A corporate charter specifies that the company may sell up to 20 million shares of stock. The company issues 12 million shares to investors and later repurchases 3 million shares. The number of issued shares after these transactions have been accounted for is: A) 12 million shares. B) 11 million shares. C) 9 million shares. D) 5 million shares.

Q: A corporate charter specifies that the company may sell up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. The number of authorized shares after these transactions are accounted for is: A) 12 million shares. B) 20 million shares. C) 9 million shares. D) 17 million shares.

Q: Contributed capital totals $30,000, Retained Earnings equals $65,000, Treasury Stock equals $18,000, and Common Stock equals $10,000. If the company does not have any accumulated other comprehensive income (loss), stockholders' equity, what is the total amount of stockholders equity? A) $113,000 B) $77,000 C) $123,000 D) $87,000

Q: All of the following are a part of contributed capital except: A) Common Stock. B) Additional Paid-in Capital. C) Preferred Stock. D) Retained Earnings.

Q: If a company does not have any accumulated other comprehensive income (loss), stockholders' equity is the: A) amount the company received in exchange for all stock issued plus the amount of Retained Earnings minus the cost of treasury stock. B) amount the company received for all stock authorized plus the amount of Retained Earnings and treasury stock. C) par value the company received for all stock issued plus the amount of Retained Earnings minus treasury stock. D) amount the company received for all stock when issued minus the amount of Retained Earnings and treasury stock.

Q: What of the following statements about Accumulated Other Comprehensive Income (Loss) is not correct? A) Accumulated Other Comprehensive Income (Loss) reports unrealized gains and losses, which are temporary changes in the value of certain assets and liabilities the company holds. B) Accumulated Other Comprehensive Income (Loss) can relate to pensions, foreign currencies, and financial investments. C) Accumulated Other Comprehensive Income (Loss) is a component of stockholders equity. D) Accumulated Other Comprehensive Income (Loss) is reported on the income statement.

Q: A corporate charter specifies that the company may issue up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. The current number of shares of treasury stock after these transactions have been accounted for is: A) 3 million shares. B) 8 million shares. C) 9 million shares. D) 17 million shares.

Q: The stockholders equity section of the balance sheet includes all of the following except: A) Retained Earnings. B) Contributed Capital. C) Treasury Stock. D) Dividends.

Q: Which of the following statements about equity and debt financing is correct? A) Equity financing is always better than debt financing. B) Equity financing requires dividends to be paid. C) Dividends are tax deductible. D) Equity financing can change stockholder control.

Q: Which of the following is an advantage of debt financing? A) It does not have to be repaid. B) Interest is discretionary. C) Interest is tax deductible. D) It reduces stockholder control.

Q: Features of common stock usually include all of the following except: A) voting rights. B) dividends. C) primary claim to the companys assets in case of liquidation. D) preemptive rights.

Q: The right of current stockholders to purchase additional shares of newly issued stock in order to maintain the same percentage ownership is called: A) liquidation. B) preemptive rights. C) cumulative preference. D) voting rights.

Q: Which of the following statements about the benefits enjoyed by the owners of common stock is not correct? A) Some classes of common stock can carry more votes than others. B) Investors in a corporation are called stockholders. C) Stockholders receive a share of the corporations profits when distributed as dividends. D) If the company ceases operations, stockholders share in any assets remaining before creditors have been paid.

Q: Holders of common stock receive certain benefits, such as a residual claim, which is the: A) right of stockholders to be paid back for their investment before anyone else if the company ceases operation. B) right to oversee management of the company. C) right to share in any remaining assets after creditors have been paid off, should the company cease operations. D) continuing right to receive a share of the companys profits in the form of dividends.

Q: Which of the following statements about a corporation is not correct? A) A corporation is a separate legal entity. B) A corporation has easy transferability of ownership. C) A corporation may have the ability to raise large amounts of capital. D) A corporations owners have unlimited liability.

Q: Advantages of the corporate form include all of the following except: A) easy to raise capital. B) shares can be purchased in small amounts. C) ownership interests are transferrable. D) legal liability of its owners is unlimited.

Q: For a business to be considered a corporation: A) its stock must be sold in very large amounts. B) it must be organized as a separate legal entity. C) it must issue both common and preferred stock. D) it must pay dividends.

Q: Income tax expense would be found on the income statement of a corporation, but not on the income statement of a sole proprietorship.

Q: The price-earnings ratio reveals information about the stock markets expectations for a companys future growth in earnings.

Q: All other things being equal, the higher the return on equity ratio, the better the financial performance of the company.

Q: One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce Retained Earnings.

Q: Dividends in arrears are reported as current liabilities on the balance sheet.

Q: Preferred stock is generally classified as stockholders' equity under both GAAP and IFRS.

Q: Unpaid dividends on cumulative preferred stock are called dividends in arrears.

Q: A liability for dividends is recorded on the date of record.

Q: State laws often restrict dividends to the amount of Retained Earnings.

Q: A company that pays no dividends is always a poor investment.

Q: A corporation does not have a legal obligation to pay dividends.

Q: When a company reissues (or sells) shares of its treasury stock at an amount different than its cost, it reports a gain or a loss on the sale.

Q: The par value of stock indicates what the stock is worth.

Q: A corporation's charter establishes the number of shares of stock that will be issued in an initial public offering (IPO).

Q: Treasury stock is a corporations own stock that has been issued and subsequently repurchased by the corporation.

Q: Issuing stock to obtain financing is called equity financing.

Q: A major advantage of debt financing is that interest expense is tax deductible.

Q: Corporations are governed by federal law.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term: 1. _____ Date of Declaration 2. _____ Issued Shares 3. _____ Seasoned New Issues 4. _____ Pro Rata Basis 5. _____ Date of Record 6. _____ Additional Paid-in Capital 7. _____ Outstanding Shares 8. _____ Stock Options 9. _____ Payment Date Definition: A. The date on which a company authorizes a dividend payment. B. The total number of shares currently owned by stockholders. C. When cash or stock dividends are issued according to the proportion of stock owned. D. Dividends that have not had income tax withheld from them. E. The date on which a company determines who receives a dividend. F. When employees of a company have the opportunity to buy a company's stock in the future at a fixed price. G. The accumulation of all the past dividends the company has not paid. H. When a company sells issues of stock after its IPO. I. The date on which a company debits dividends payable and credits cash. J. When cash or stock dividends are issued in an equal dollar or share amount per stockholder. K. The date on which a liability is recorded for a dividend. L. The total number of shares the company has sold, whether held by stockholders or by the company. M. When owners of the company contribute additional capital beyond what they paid for their stock. N. The amount above the par value of the stock that owners paid the issuer for the stock.

Q: Choose the appropriate term to match the term and the definition. Not all definitions will be used. Term: 1. _____ Corporation 2. _____ Par Value 3. _____ Growth Investment 4. _____ LLC 5. _____ Current Dividend Preference 6. _____ Partnership 7. _____ Market Value 8. _____ Income Investment 9. _____ Cumulative Dividend Preference 10. _____ Sole Proprietorship Definition: A. When preferred stockholders are paid dividends before other stockholders. B. When stockholders prefer to receive dividends at the end of the year rather than each quarter. C. The current stock price. D. A company that issues stock on one of the major stock exchanges. E. An unincorporated business that is owned by a single individual. F. A stock that is currently selling for its original issue price. G. A company that has a separate legal identity from its owners. H. When companies are obligated to pay preferred stockholders past dividends not yet distributed before paying dividends to owners of common stock. I. The nominal value per share of stock set by the company's charter. J. Stock of companies that tend to reinvest earnings to provide for greater future sales and profits. K. A company that is like a partnership in nature except that it has limited liability. L. Stock of companies that tend to pay relatively high dividends compared to the stock price. M. An unincorporated business owned by two or more individuals.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term: 1. _____ Treasury Stock 2. _____ Cash Dividend 3. _____ IPO 4. _____ Preferred Stock 5. _____ Outstanding Shares 6. _____ EPS 7. _____ Stock Dividend 8. _____ Residual Claim 9. _____ ROE Definition: A. When a company first starts selling stock to the public. B. The additional shares of stock a company can issue beyond what are already issued. C. Earnings per share that reflects treasury and preferred stock. D. This payment raises stockholders' equity. E. (Net income less preferred dividends) divided by average stockholders' equity. F. The shares of stock held by stockholders. G. Stock shares that pay a fixed dividend rate but have no voting rights. H. (Net income less preferred dividends) divided by the average number of outstanding common shares. I. Stock that allows owners to be listed among creditors. J. This dividend does not reduce stockholders' equity. K. The shares of stock held by the issuing company. L. Stockholders' entitlement to remaining assets after creditors are repaid. M. This payment decreases stockholders' equity.

Q: Choose the appropriate letter to match the description with the purpose and accounting effect of the type of stock transaction. Some letters will appear in more than one column and not all letters will necessarily be used. Some blanks will require more than one letter. Stock Split Large Stock Dividend Stock Repurchase Purpose Accounting Effect A. To obtain shares to reissue to employees as part of employee stock purchase plans. B. To increase the number of shares outstanding and decrease the per-share market price while managing a company that you expect will struggle financially in the future. C. To reduce the number of outstanding shares to increase per-share measures of earnings. D. To increase the number of shares outstanding and decrease the per-share market price while signaling to financial statement users that the company expects significant future earnings. E. To obtain shares that can be reissued as payment for purchases of other companies. F. To send a signal to investors that the company itself believes its own stock is worth acquiring. G. Reduces stockholders' equity. H. Changes par value per share. I. Changes Additional Paid-in Capital account balance. J. Reduces Retained Earnings. K. Does not affect any of the account balances that comprise stockholders equity.

Q: Company Z has 8 million shares of common stock authorized with a par value of $1 and a market price of $72. There are 4 million outstanding shares and 1 million shares held in treasury stock. Required: Part a. Prepare the journal entry if the company declares and distributes a 10% stock dividend. Part b. Show the effect of the 10% stock dividend on assets, liabilities, and stockholders' equity. Part c. Prepare the journal entry if the company declares and distributes a 100% stock dividend. Part d. Show the effect of the 100% stock dividend on assets, liabilities, and stockholders equity.

Q: Groucho, Harpo, and Chico go into partnership on January 1, 2015. Groucho contributes $90,000, Harpo $70,000, and Chico $40,000 to a business called Marx Brothers' Partnership. On a monthly basis, each partner is allocated income and is allowed to receive cash from the business in proportion to the capital they provided. Assume that Groucho receives $2,700 cash per month. Required: Part a. Prepare the journal entry for the initial investment. Part b. Determine the monthly distribution amounts for each of the three partners. Part c. Prepare the journal entry that would be made in one month for the monthly distribution. Part d. Prepare the journal entry for the allocation of an annual net income of $84,000. For purposes of this journal entry, assume Sales Revenue totaled $116,000 and that all expenses, totaling $32,000, were recorded in a single account called Operating Expenses. Part e. Prepare the journal entry to close the Drawings accounts at the end of the year. Part f. Prepare a Statement of Partners' Equity (assume no additional investments made).

Q: Nancy ORode, doing business as ORode Consulting, performs consulting services for companies that create online learning games for children. On January 1, 2015, she started a sole proprietorship by placing $15,000 cash in a bank account opened for the business. Each month during the year, ORode withdrew $500 cash from the business for personal use. At December 31, 2015, after the last withdrawal, the Drawings account reflected a debit balance of $6,000. During the year, the usual journal entries for the year, including adjusting and closing entries for the revenue and expense accounts, resulted in total revenue of $60,000, total expenses of $12,000, and net income of $48,000. (For purposes of the related journal entry, use the accounts Consulting Revenue and Operating Expenses.) Part a. Prepare the journal entry to record the initial capital contribution. Part b. Prepare the journal entry to record one of the monthly withdrawals. Part c. Prepare the journal entry to close the net income to the N. ORode, Capital account. Part d. Prepare the journal entry to close the N. ORode, Drawings accounts at the end of the year. Part e. Prepare a Statement of Owners Equity for the year ending December 31, 2015.

Q: Complete the table below by filling in the Formula blank with the letter that corresponds to the correct formula for each ratio and filling in the Interpretation blank with the letter that corresponds to the interpretation provided. Not all ratio formulas and interpretations will be used. Ratio Formula Interpretation 1. Price Earnings Ratio 2. Earnings per Share 3. Return on Equity Ratio Formulas A. 365 Inventory Turnover B. (Sales Cost of Goods Sold) Sales C. Net Income Sales D. Net Operating Income Interest Expense E. (Net income Preferred dividends) Average number of common shares outstanding F. Total Liabilities Total Assets G. Current stock price (per share) Earnings per Share H. (Net income Preferred dividends) Average common stockholders equity Ratio Interpretations A. The portion of sales that is attributable to merchandise profit. B. Ability of a company to pay its short-term debts as they come due. C. The percent of each sales dollar that is left over after covering costs and expenses. D. How many times more than the current years earnings investors are willing to pay for a companys common stock E. Ability of a company to quickly pay its short-term debts as they come due. F. The portion of a companys total financing that comes from debt. G. The amount of income generated for each share of common stock owned by stockholders H. How effectively a company is using its assets to generate revenue. I. The amount of income earned for each dollar of common stockholders equity.

Q: Phelps, Inc. had assets of $67,646, liabilities of $15,466, and 10,718 shares of outstanding common stock at December 31, 2014. Net income for 2015 was $7,829. The company had assets of $79,571, liabilities of $18,551, 10,771 shares of outstanding, and its stock was trading at a price of $10 per share at December 31, 2016. Net income for 2016 was $9,993. Required: Part a. Calculate EPS for 2016. Part b. Calculate ROE for 2016. Part c. Calculate the Price/Earnings ratio for 2016

Q: Marble Corporation had the following balances in its stockholders' equity accounts at December 31, 2015: Common Stock, $10 par, 50,000 shares authorized, 20,000 shares issued $200,000 Contributed Additional Paid-in Capital Value, Common 250,000 Retained Earnings 500,000 Treasury Stock, 1,000 shares (20,000) Total stockholders equity $930,000 The following transactions occurred during 2016: February 3 Sold and issued 3,000 shares of common stock for $22 per share. May 10 Declared dividends in the amount of $11,000. October 12 Sold 500 shares of the treasury stock for $20 per share. December 31 Net income for the year was determined to be $75,000 Required: Based on the above information, prepare a statement of stockholders' equity for 2016.

Q: McEnroe Inc. has outstanding 10 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock. The preferred stock has a 7% cumulative dividend preference. The company declares total dividends amounting to $50,000, $250,000, and $600,000 during 2015, 2016, and 2017, respectively. Required: Part a. Compute the amount of dividends to be distributed to preferred and common shareholders during 2015. Part b. Compute the amount of dividends to be distributed to preferred and common shareholders during 2016. Part c. Compute the amount of dividends to be distributed to preferred and common shareholders during 2017.

Q: McEwan Company has outstanding 10 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock. The preferred stock is noncumulative and has a 7% current dividend preference. The company declares total dividends amounting to $50,000, $250,000, and $600,000 during 2015, 2016, and 2017, respectively. Required: Part a. Compute the amount of dividends to be distributed to preferred and common shareholders during 2015. Part b. Compute the amount of dividends to be distributed to preferred and common shareholders during 2016. Part c. Compute the amount of dividends to be distributed to preferred and common shareholders during 2017.

Q: Tyler Corporation was organized in 2015. Its corporate charter authorized the issuance of 50,000 shares of common stock, par value $5 per share, and 10,000 shares of 8% preferred stock, par value $25 per share. The following transactions took place during 2015: January 1 Sold and issued 45,000 shares of common stock for cash at $25 per share. February 1 Sold and issued 5,000 shares of preferred stock for cash of $75 per share. June 1 Repurchased 7,500 shares of common stock at $24 per share. August 1 Sold 1,000 shares of the treasury stock at $26 per share. October 1 Sold another 1,500 shares of the treasury stock at $23 per share. December 1 Declared cash dividends totaling $100,000. December 31 Paid the cash dividends that were declared. Required: Part a. Prepare journal entries for each of the following transactions: Part b. Compute the number of shares of common stock issued and outstanding at December 31, 2015.

Q: The market price of a share of common stock at the time of issuance was $19.50, while the market price of a preferred share of stock at the time of issuance was $32. The company paid $12.50 per share for its treasury stock. Required: Determine the missing amount in the stockholders' equity section of the balance sheet set forth below. STOCKHOLDERS EQUITY .... Contributed Capital: .... Preferred Stock, $2.00 par value, authorized 1,000,000 shares; issued 300,000 shares....................................................................... $ (a) .... Additional Paid-in Capital.................................................................... (b) .... Common Stock, $3.00 par value, authorized 40,000,000 shares; issued 25,600,000 shares.................................................................. (c) .... Additional Paid-in Capital.................................................................... (d) .... Total Contributed Capital................................................................. (e) .... Retained Earnings.................................................................................... 305,683,000 .... Treasury Stock (10,000 shares, at cost)................................................... (f) Total Stockholders' Equity............................................................................ $ (g) (a) ________ (b) ________ (c) ________ (d) ________ (e) ________ (f) ________ (g) ________

Q: Core Corporation had 400,000 shares of $2 par value common stock authorized. On December 31, 2015, there were 200,000 shares issued and outstanding. The market value of its common stock on that date was $100 per share. On January 5, 2016, the board of directors declared a five-to-four stock split (i.e., a 25% increase in the number of shares). Required: Part a. Briefly explain the how a stock spilt affects the stockholders equity accounts and the total resources of the company. Part b. Assume that you have 100 shares of Core Corporation common stock. Determine how many shares will you have after the stock split. Part c. Determine how the stock split will impact the number of authorized shares, the number of issued and outstanding shares, and the par value per share. Part d. Determine the total par value of the companys issued and outstanding shares (that is, the balance of the Common Stock account) before the stock split and after the stock split.

Q: Delta Inc. had 1,000,000 shares of $4 par value common stock authorized. On December 31, 2015, there were 400,000 shares issued and outstanding. The market value of its common stock on that date was $100 per share. On January 5, 2016, the board of directors declared a stock dividend. Required: Part a. Assume that you have 100 shares of Delta Inc. common stock. Determine how many shares will you have after a 100% stock dividend. Part b. Briefly explain the how a 100% stock dividend affects the stockholders equity accounts and the total resources of the company. (Do not quantify the impacts or prepare a journal entry.) Part c. Assume instead that the board declared a 10% stock dividend. Briefly explain how that 10% stock dividend affects the stockholders equity accounts and the total resources of the company. (Do not quantify the impacts or prepare a journal entry.) Part d. Identify three possible explanations for the declaration of a stock dividend.

Q: Houghton Company began business on January 1, 2015 by issuing all of its 1,000,000 authorized shares of its $1 par value common stock for $20 per share. On June 30, Houghton declared a cash dividend of $1 per share to stockholders of record on July 31. Houghton paid the cash dividend on August 30. On November 1, Houghton reacquired 200,000 of its own shares of stock for $25 per share. On December 22, Houghton resold 100,000 of these shares for $30 per share. Required: Part a. Prepare all of the necessary journal entries to record the events described above. Part b. Prepare the stockholders equity section of the balance sheet as of December 31, 2015 assuming that the net income for the year was $3,000,000.

Q: A corporation had 10,000 shares of $10 par value common stock outstanding. The board of directors declared and issued a 10% stock dividend. The market value of the stock was $20 per share. What is the journal entry to record this stock dividend? A) Debit Retained Earnings and credit Common Stock for $20,000 B) Debit Retained Earnings and credit Common Stock for $10,000 C) Debit Retained Earnings for $20,000, credit Common Stock for $10,000, and credit Additional Paid-in Capital for $10,000 D) No entry is made to record the stock dividend.

Q: A corporation had 50,000 shares of $20 par value common stock outstanding. The board of directors declared and issued a 50% stock dividend. The market value of the stock was $27 per share. What is the journal entry to record this stock dividend? A) Debit Retained Earnings and credit Common Stock for $675,000 B) Debit Retained Earnings and credit Common Stock for $500,000 C) Debit Retained Earnings and credit Cash for $675,000 D) No entry is made to record the stock dividend.

Q: Jackson and O'Neill form a partnership that produces gates. Jackson provides $30,000 of capital while O'Neill contributes $90,000 of capital; they agree to split net income by the same proportion. The partnerships net income is $80,000 for the first year. They did not draw any income out of the business or add any additional capital during the first year. At the end of the year, the partners' equity is: A) $70,000 for Jackson and $130,000 for O'Neill for a total of $200,000. B) $200,000 minus income tax expense for the partnership. C) $200,000 minus the income tax paid by each partner. D) $50,000 for Jackson and $150,000 for O'Neill for a total of $200,000.

Q: One of the advantages of a partnership is: A) limited liability. B) the salaries of the partners can be written off as an expense. C) ease of formation. D) income tax is paid by the business.

Q: You form a partnership with your best friend. You have contributed 65% of the capital and can claim 65% of the net income. At the end of the first year, you discover that your partner has run up $40,000 in debt using the business' credit card. The maximum you could be liable for is: A) $0. B) $40,000. C) $20,000. D) $26,000.

Q: Limited liability companies (LLCs): A) are like corporations in that the owners have limited liability. B) are like partnerships in that the owners have unlimited liability. C) have the tax treatment of corporations. D) have the tax treatment of sole proprietorships.

Q: At the end of the accounting period, but before the closing entries have been recorded, Harry, the proprietor of Harry's Bar and Grill, has a debit of $24,500 in his drawing account and a credit of $126,800 in his capital account. If his capital account has a credit balance of $137,900 after the closing, what was his net income? A) $11,100 B) $35,600 C) $113,400 D) $13,400

Q: At the end of the accounting period, but before closing entries are made, Harry, the proprietor of Harry's Bar and Grill, has a debit balance of $24,500 in his drawing account and a credit balance of $72,300 in his capital account. Which of the following statements is correct? A) Harry's net income was $47,800. B) During the closing process, Harry will debit the drawing account for $24,500 and credit the capital account for $24,500. C) During the closing process, Harry will debit the capital account for $24,500 and credit the drawing account for $24,500. D) Harry's Retained Earnings account was $47,800.

Q: Which of the following statements about business forms is correct? A) A sole proprietorship is an unincorporated business owned by one person. B) All partnerships are owned by two people. C) A corporation is not a legal entity. D) An LLC (or limited liability company) has the same tax treatment as a corporation.

Q: When a company uses excess cash to buy back some of its outstanding common stock, which of the following ratios will be affected directly in the manner described below? A) Return on equity (ROE) will decrease. B) Earnings per share (EPS) will increase. C) The Price Earnings (PE) ratio will increase. D) There will not be any effect on the three ratios.

Q: All other things being equal, when companies repurchases its common stock: A) EPS decreases and ROE increases. B) EPS increases and ROE stays the same. C) EPS increases and ROE decreases. D) EPS and ROE both increase.

Q: As of November 29, it appears that Notel will report earnings per share (EPS) of $1.15 for the quarter ended November 30. Which of the following events would cause this EPS number to decrease, assuming the event occurs the morning of November 30? A) The company pays a supplier for inventory bought on account. B) The company declares, but does not pay, a cash dividend. C) The company purchases 10 shares of common stock in another company. D) The company reissues the treasury stock it holds.

Q: Earnings per share (EPS) can be affected by all of the following except: A) how the company chose to finance its operations. B) the method of depreciation. C) the inventory costing method. D) classification of debt as current or long-term.

Q: Use the information above to answer the following question. The Price/Earnings ratio is approximately: A) 2.00. B) 2.50. C) 2.84. D) 12.50.

Q: Use the information above to answer the following question. The EPS is approximately: A) $0.40 B) $1.76. C) $1.86. D) $2.00.

Q: A company originally issues 180,000 shares of stock at a price of $22; one year later the stock price is $40 per share, the number of outstanding shares is unchanged, and the companys net income for the year is $230,400. The P/E ratio at the end of the recent year is: A) 0.0002. B) 24.22. C) 31.25. D) 0.0001.

Q: If a company's P/E ratio is 24 and the company's EPS is $1.50, then the company's stock price is: A) $36.00. B) $25.50. C) $16.00. D) $6.25.

Q: If a company's P/E ratio is 12.5 and the company's stock price is $17.50 per share then the company's EPS is: A) $0.71. B) $1.40. C) $5.00. D) $0.40.

Q: If a company's P/E ratio suddenly decreases: A) you should sell the stock as soon as possible. B) you should buy more of the stock to increase your average gain. C) the company probably announced higher earnings forecasts. D) the market must have reacted to some bad news that is expected to affect the company in the future.

Q: Company X has a P/E ratio of 16 in year 2013 and 16.5 in 2014. In 2015, its P/E ratio is 24. The best way to interpret these data is to conclude that: A) the stock is overpriced and should be sold. B) the stock has great growth capacity and should be bought. C) other financial results and news should be examined to determine the cause of the P/E ratio change. D) the stock is underpriced and should be bought.

Q: A company has net income of $5.6 million and earnings per share of $2.00. Average common stockholders' equity is $32 million. The companys current stock price is $10 per share. What is its Price/Earnings (P/E) ratio? A) 0.2 B) 5.0 C) 0.175 D) 5.7