Which of the following is not subject to depreciation?
Answer(s): B
Land has unlimited useful life and is not consumed when it is used, and therefore not subject to depreciation.
Which of the following statements are correct?
Answer(s): A
The choice of accounting principles affects only the classification and not the net cash flow, and reducing receivables in considered an increase in operating cash flow.
A firm pays out half its earnings as dividends. If its net income is $50, then
Since half of $50 is paid out as dividends and the other half retained, the book value and equity increase by $25 and so do assets. Remember the basic equation, Assets = Liabilities + Equity.
Birch Ltd. had net income for the year of $101,504 and a simple capital structure consisting of the followingcommon shares outstanding:Months OutstandingNumber of SharesJanuary February 24,000March June 29,400July November 36,000December 35,040Assume Birch issued a 20% stock dividend on August 1st. In this case, earnings per share (rounded to the nearest cent) were
Following is the calculation for the weighted average number of shares outstanding (before the 20% stock dividend):24,000 X (2 / 12) = 4,00029,400 X (4 / 12) = 9,80036,000 X (5 / 12) = 15,00035,040 X (1 /12) = 2,920weighted average 31,720Stock dividends are assumed to have occurred at the beginning of the year. Thus, the weighted average number of shares equals the amount before the stock dividend plus 20% more which is equal to 38,064 (31,720 + 20% X 31,720). EPS equals net income divided by the weighted average number of shares outstanding which is $2.67 ($101,504 / 38,064).
A firm has a high debt-to-equity ratio. In order to improve this ratio in earlier years, it will prefer:
Answer(s): C
The company will use FIFO (assuming prices are increasing) and straight line depreciation to increase income and hence, retained earnings. This improves the debt-to-equity ratio.
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