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    Accounting questions

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    1. (TCO 5/6) Woolery, Inc. had 50,000 shares of common stock outstanding at January 1, 2009. On March 31, 2009, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of 6% convertible bonds outstanding throughout the year. The bonds are convertible into 40,000 shares of common stock. Net income for the year was $350,000. The tax rate is 35%.

    Compute basic earnings per share for the year ended December 31, 2009.

    2. (TCO 7) Typically U.S. corporations record and report most changes in accounting principle retrospectively, but sometimes report the changes prospectively. Explain when it is appropriate to report the changes prospectively. Provide examples.

    3. (TCO 8) Partial balance sheets for Yarborough Company and additional information are found below.
    Yarborough Company, Partial Balance Sheets, As of December 31

    ABC Company, Partial Balance Sheets, As of December 31
    2009 2008
    Equipment $100,000 $75,000
    Accumulated depreciation (25,000) (20,000)
    Common stock, $5 par 150,000 100,000
    Paid in capital 20,000
    Retained earnings 40,000 30,000

    Additional information for 2009:
    July 1: Issued 10,000 shares of common stock for cash.
    July 1: Purchased new equipment for cash.
    Dec. 31 Paid cash dividends of $30,000.

    Prepare the investing activities section of the statement of cash flows for 2009.

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    Solution Preview

    1. Basic earnings per share = (Net Income - Preferred Dividends)/Weighted average common shares
    Net Income = 350,000
    Preferred dividends = 0
    Weighted average common shares = 50,000 beginning + 12,000 X 9/12 (since these were outstanding for 9 months) = ...

    Solution Summary

    The solution explains some accounting questions relating to basic EPS; prospective changes; investing activities - cash flow statement

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