Multiple Choice

1) For a single employee in his/her service period, the year 3 service cost is

a. less than the year 2 service cost.

b. equal to the year 2 service cost.

c. more than the year 2 service cost.

d. less than the year 4 service cost.

2) Potential common shares include all but which of the following?

a. Convertible preferred stock

b. Convertible bonds

c. Stock dividends

d. Stock warrants

3) Convertible preferred stock is dilutive (compared to basic earnings per share) if the "earnings per incremental share" is

a. equal to the basic earnings per share.

b. greater than or equal to the basic earnings per share.

c. greater than the basic earnings per share.

d. less than the basic earnings per share.

4) In claculating basic earnings per share, dividends on cumulative preferred stock would

a. be subtracted for only the amount of the current year's preferred dividend claim.

b. not be subtracted.

c. be subtracted for all preferred dividends in arrears plus the current year's preferred dividend claim.

d. be subtracted for all preferred dividends in arrears only.

5) If a company uses a periodic inventory system and the ending inventory is overstated,

a. the cost of goods sold will be overstated and net income will be understated.

b. the cost of goods sold will be understated and net income will be overstated.

c. the cost of goods sold will be overstated and net income will be overstated.

d. the cost of goods sold will be understated and net income will be understated.

6) When stock options expire without being exercised, the company that originally issued the options will debit

a. paid-in capital-stock options.

b. common stock.

c. paid-in capital-expired stock options.

d. cash.

7) If a piece of equipment with a five-year life was purchased but the cost was inadvertently recorded as an expense, what would be a result of this error (assuming the error has not been found or corrected)?

a. Year one expenses would be overstated and year two expenses would be understated.

b. Year one expenses would be understated and year two expenses would be understated.

c. Year one expenses would be understated and year two expenses would be overstated.

d. Year one expenses would be overstated and year two expenses would be overstated.

8) In the basic earnings per share numerator, preferred dividends are subtracted out in all of the following cases except

a. if the preferred stock was declared.

b. if the preferred stock is cumulative and no dividends were declared.

c. if the preferred stock is noncumulative and no dividends were declared.

d. if the preferred stock is cumulative and the preferred dividend was declared.

9) A change in estimate will affect

a. the current and future accounting periods.

b. the current accounting period only.

c. prior, current, and future accounting periods.

d. prior accounting periods only.