QUESTION: 1769

Anti-dilutive securities are those that:

are always included in the computation of the Diluted EPS.
differentiate between a simple capital structure and complex capital structure.
none of these answers.
increase the earnings per share when assumed exercised.

Answer(s): D

Explanation:

Anti-dilutive securities are always excluded from the computation of the Diluted EPS.

Jones company earned $100,000 of pre-tax income in 1998, had $50,000 of pre-tax income in 1997, pays a 40% tax rate and has a dividend payout of 50%. What is the dividend amount declared by Jones Company in 1998?

$45,000
$40,000
$30,000
$50,000

Answer(s): C

Explanation:

1998 Pre-tax income was $100,000 in 1998. The pre-tax income from the prior year has no relevance to the question. If the company pays a 40% tax rate, they are left with net income of $60,000 for the year. If the dividend payout rate is 50%, the company will declare $30,000 of dividends for 1998.

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QUESTION: 1771

All of the following statements are true except for:

When inventory balances decrease, cash flows increase.
When short-term debt increases, cash flows increase.
When accounts receivable balances increase, cash flows increase.
When accounts payable balances increase, cash flows increase.

Answer(s): C

Explanation:

As accounts receivable balances increase, there is less income received as cash, therefore cash balances on the statement of cash flows will decrease.

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QUESTION: 1772

Beginning inventory of 50 units, purchased at $5
50 units purchased at $10
35 units purchased at $9
25 units sold at $15
70 units sold at $12
Tax rate = 40%
Beginning LIFO reserve = $300

Given the above, the net income using Average Cost method is ________.

$279
$224
$381
$249

Answer(s): A

Explanation:

The Average Cost method first calculates the average value of each item in the inventory, including the purchases made during the period. In this case, the total inventory value at cost is 50*5 + 50*10 + 35*9 = $1,065. This is the value of (50 + 50 + 35) = 135 units. Therefore, average cost per unit = 1,065/135 = $7.89.
Total COGS under Average Cost method is then $7.89*95 = $749.44. The total revenue equals 25*15 + 70*12 = 1,215, coming from a sale of 95 units. Thus, pretax income = 1,215 - 749.44 = $465.56. The after-tax income equals 465.56*0.6 = $279.

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