1. Assume that the following data relative to Eddy Company for 2014 is available:

Net Income $1,400,000

Transactions in Common Shares Change Cumulative

Jan. 1, 2014, Beginning number 500,000

Mar. 1, 2014, Purchase of treasury shares (60,000) 440,000

June 1, 2014, Stock split 2-1 440,000 880,000

Nov. 1, 2014, Issuance of shares 120,000 1,000,000

8% Cumulative Convertible Preferred Stock

Sold at par, convertible into 200,000 shares of common;

Outstanding for all of 2014. $1,000,000

Stock Options

Exercisable at the option price of $25 per share. Average

market price in 2014, $30. Outstanding for all of 2014. 60,000 shares

REQUIRED:

Compute both basic and diluted earnings per share.

2. Your client has asked you to provide guidance on the following potential accounting changes:

(1) Change from straight-line method of depreciation to sum-of-the-years'-digits

(2) Change from the cash basis to accrual basis of accounting

(3) Change from FIFO to LIFO method for inventory valuation purposes

(4) Change from presentation of statements of individual companies to presentation of consolidated statements

(5) Change due to failure to record depreciation in a previous period

(6) Change in the realizability of certain receivables

(7) Change from LIFO to FIFO method for inventory valuation purposes

REQUIRED:

For each of the items above:

• Indicate the type of accounting change, using one of the following codes:

E - Change in estimate

EP - Change in estimate resulting from change in principle

N - Not an accounting change (correction of an error)

PP - Change in principle reported prospectively

PR - Change in principle reported retrospectively

R - Change in reporting entity

• Indicate whether or not restatement of prior year financial statements is necessary.
• Indicate whether the cumulative effect on prior years