QUESTION: 2093

Which of the following is/are true about computation of Basic EPS?

Reacquired shares are excluded from the date of acquisition.
II. Shares issued in the purchase of assets are assumed to have been outstanding for the entire period.
III. Shares issued in mergers are assumed to have been outstanding from the date of issuance.
I only
II & III
I & II
I, II & III

Answer(s): A

Explanation:

Weighted average shares used in EPS computations are calculated using the following rules:
1. Reacquired shares are excluded from the date of acquisition.
2. Shares issued in the purchase of assets are included from the date of issuance.
3. Shares issued in mergers are assumed to have been outstanding for all periods for which EPS numbers are presented.

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QUESTION: 2094

At December 31, 1996, Davis Inc. awaits judgment on a lawsuit for a competitor's infringement of Davis' patent. Legal counsel believes it is probable that Davis will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Davis' 1996 financial statements?

None of these answers.
Neither in note disclosure nor by accrual.
In note disclosure only.
By accrual for the lowest amount of the range of possible awards.
By accrual for the most likely award.

Answer(s): C

Explanation:

A loss contingency is recognized but not a gain contingency following the principle of conservatism. A gain contingency is only disclosed in the notes until the settlement is realized.

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QUESTION: 2095

A firm is purchased for more than the fair market value of its assets. The excess is:

considered a "premium paid" and amortized over the life of the acquired assets.
considered as "Goodwill."
written off against the retained earnings on the balance sheet.
treated as an extraordinary loss & presented net of taxes on the income statement.

Answer(s): B

Explanation:

Goodwill is defined as the price paid in excess of the fair market value of the assets of the target firm.

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QUESTION: 2096

When analyzing the balance sheet, which of the following is an argument against using LIFO in times of rising prices?

Neither of these answers is correct.
Both of these answers are correct.
Under LIFO, ending inventory will be overstated.
Under LIFO, ending inventory is valued at the oldest prices, an unrealistic valuation.

Answer(s): D

Explanation:

LIFO values ending inventory at the oldest prices, thus in times of rising prices, inventory will be understated.
This results in reporting an unrealistic valuation of the company's inventory.

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QUESTION: 2093

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QUESTION: 2094

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QUESTION: 2095

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QUESTION: 2096

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