CA Corporate Accounting 5

Question 1

A company has net income of $600,000, 200,000 basic shares, and 20,000 dilutive stock options with an exercise price of $10 when the average market price is $25. What is the diluted share count using the treasury stock method?

Accepted Answer

208,000

Answer

Treasury stock method: Options proceeds = 20,000 × $10 = $200,000; shares repurchased = $200,000 ÷ $25 = 8,000; net dilutive shares = 20,000 – 8,000 = 12,000; diluted = 200,000 + 12,000 = 212,000.

Question 2

Under the allowance method, when a specific customer account is written off as uncollectible, the journal entry is:

Accepted Answer

Debit Allowance for Doubtful Accounts; Credit Accounts Receivable

Answer

Writing off a specific account debits the Allowance (reducing the contra-asset) and credits Accounts Receivable.

Question 3

Which of the following best describes the concept of 'legal capital' for a corporation?

Accepted Answer

The minimum amount of contributed capital that cannot be distributed to shareholders

Answer

Legal capital, typically equal to par value of issued shares, is the minimum equity cushion that state law protects from distribution.

Question 4

A company records a prior period error correction that increases net income by $50,000 (after tax). Where is this adjustment reported in the financial statements?

Accepted Answer

Opening retained earnings in the statement of changes in equity

Answer

Under ASC 250, prior period error corrections are reported as an adjustment to opening retained earnings in the earliest period presented, not through current income.

Question 5

In a liquidating dividend, what is the accounting treatment that differs from an ordinary cash dividend?

Accepted Answer

The portion exceeding retained earnings is charged to Additional Paid-In Capital

Answer

When a dividend exceeds available retained earnings, the excess is treated as a return of capital and charged to APIC rather than retained earnings.

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Corporate Accounting 5