FINANCIAL ANALYSIS FINAL study guide 2025/2026
Throne's Party Palace had supplies on hand at the end of their first year of operations of
$200. If Throne's has one open (unpaid) supplies invoice for $150 at year-end and they
made cash payments of $1,200 for supplies throughout the year, what amount should
be recorded for supplies expense on their Year 1 income statement under the accrual
basis? $1,150
Under the completed contract method, revenue is recognized ______ when the
project is complete.
Under the installment method, revenue is recognized when the customer ____ makes
a cash payment.
Cruise Builders Inc., begins building a new ship for Happiness Cruise Lines in 2015. The
project price is $12,000,000. The estimated total cost is $9,000,000 over three years.
Here is the information for 2015 only: costs incurred, $3,000,000; estimated completion
costs, $6,000,000; billings, $2,500,000; cash collected, $1,500,000. Which one of the
following is the correct cost ratio to use in computing the profit for 2015 under the
percentage-of-completion method? 33%
The percentage-of-completion method violates what general guideline on revenue
recognition? The earnings process is completed.
Estimated losses on long-term construction contracts are recognized immediately under
the percentage-ofcompletion method. True
The percentage used in the percentage-of-completion method of accounting for long-
term construction contracts is generally based on the proportion of time elapsed
relative to the overall length of the contract. False
Under the percentage-of-completion method, revenue is recognized ______
throughout a project, based upon the amount of work completed each year.
Which of the following is true regarding the completed-contract method? Income is
only recognized at the end of the project.
Assuming Smith Construction uses the percentage-of-completion method of revenue
recognition in accounting for Job 713, the gross profit recognized in 2000 would be
______. $45,000
,If Smith Construction had used the completed contract method to recognize revenue,
what amount of gross profit would have been recognized each year? (2000; 2001)
$0; $100,000
Transactions and events that are unusual in nature and infrequent in occurrence and
material in amount are known as ______. extraordinary items
Operating income from discontinued operations and any gains or losses from their sale
are ______ segregated in the income statement.
By what must a company divide net earnings available to common shareholders in
computing earnings per common share? Average number of common shares
outstanding
A company with net income of $450,000, 200,000 weighted-average shares of common
shares outstanding, and 10,000 shares of $5 cumulative preferred stock outstanding
would have earnings per share of $2.00 per share of common stock. True
To determine the earnings per share, ______ should be divided by the average number
of common shares outstanding? net income - preferred dividends
The standard equation for computing basic earnings per share (EPS) is ______. Basis
EPS = [Net Income - Preferred Dividends]/Weighted Average Number of Common
Shares Outstanding
On December 31, 2015 and 2014, Linda Corp. had 100,000 common shares and 10,000
$5 no-par- value cumulative preferred shares outstanding. No dividends were declared
on either the preferred or common shares in 2015 or 2014. Net income for 2015 was
$400,000. For 2015, earnings per common share amounted to ______. $3.50
Sugarland Corporation had 200,000 common shares outstanding on January 1, 2015.
They issued 30,000 additional shares on 4/1/2015 and 12,000 shares on 12/1/2015.
What is the weighted average number of shares for the basic EPS computation at the
end of 2015? 223,500 shares
Robinson Company had 1 million shares outstanding at the beginning of the year. On
April 1, Robinson issued an additional 300,000 shares. On July 1, Robinson issued
200,000 more shares. What is Robinson's weighted average number of shares
outstanding for the calculation of earnings per share? 1,325,000 shares
. What adjustment needs to be made when computing the weighted average number of
shares of common stock outstanding for a company whose shares were issued on April
, 1? The number of shares issued must be ______ multiplied by 9 and then divided
by 12.
On October 1, 2015, Sacho issued a 25% stock dividend on its common shares and paid
$500,000 cash dividends on preferred shares. Net income for the year ending December
31, 2015 was $2,000,000.
Sacho's 2015 basic EPS should be ______. $3.00
Which of the following statements is TRUE regarding the reporting of earnings per share
(EPS)? Diluted EPS must be less than or equal to basic EPS.
A complex capital structure, for purposes of determining disclosure of diluted EPS, is
distinguished from a simple capital structure by the ______. company having issued
warrants, convertible securities, or options
Examples of potentially dilutive securities include all of the following EXCEPT ______.
non-convertible bonds
In determining earnings per share (EPS), the interest expense on convertible debt that is
dilutive (net of applicable taxes) should be ______ ignored for basic EPS and added
back to net income for diluted EPS.
Crimson Corporation had 3 million shares of common stock outstanding throughout the
year in 2015. During the year, it issued five thousand, $1,000 convertible bonds with an
interest rate of 8%. These bonds were issued at par on 1/1/2015. Each bond is
convertible into 10 shares of common stock. Assuming Crimson had a net income of 2.4
million for 2015 and has an effective tax rate of 40%, what is its diluted EPS (rounded)?
$0.80
Assume that the exercise price of an option is $10 and the average market price of the
stock is $13. Assuming 999 options are outstanding during the entire year, what is the
number of shares to be added to the denominator of the diluted EPS? 231
The Widget Company had net income of $1 million for the period. There are 1 million
shares of Widget common stock outstanding. If there are 100,000 options outstanding
with an exercise price of $40, what is the diluted earnings per share for Widget common
stock if the current price of a share is $50? $0.98
Throne's Party Palace had supplies on hand at the end of their first year of operations of
$200. If Throne's has one open (unpaid) supplies invoice for $150 at year-end and they
made cash payments of $1,200 for supplies throughout the year, what amount should
be recorded for supplies expense on their Year 1 income statement under the accrual
basis? $1,150
Under the completed contract method, revenue is recognized ______ when the
project is complete.
Under the installment method, revenue is recognized when the customer ____ makes
a cash payment.
Cruise Builders Inc., begins building a new ship for Happiness Cruise Lines in 2015. The
project price is $12,000,000. The estimated total cost is $9,000,000 over three years.
Here is the information for 2015 only: costs incurred, $3,000,000; estimated completion
costs, $6,000,000; billings, $2,500,000; cash collected, $1,500,000. Which one of the
following is the correct cost ratio to use in computing the profit for 2015 under the
percentage-of-completion method? 33%
The percentage-of-completion method violates what general guideline on revenue
recognition? The earnings process is completed.
Estimated losses on long-term construction contracts are recognized immediately under
the percentage-ofcompletion method. True
The percentage used in the percentage-of-completion method of accounting for long-
term construction contracts is generally based on the proportion of time elapsed
relative to the overall length of the contract. False
Under the percentage-of-completion method, revenue is recognized ______
throughout a project, based upon the amount of work completed each year.
Which of the following is true regarding the completed-contract method? Income is
only recognized at the end of the project.
Assuming Smith Construction uses the percentage-of-completion method of revenue
recognition in accounting for Job 713, the gross profit recognized in 2000 would be
______. $45,000
,If Smith Construction had used the completed contract method to recognize revenue,
what amount of gross profit would have been recognized each year? (2000; 2001)
$0; $100,000
Transactions and events that are unusual in nature and infrequent in occurrence and
material in amount are known as ______. extraordinary items
Operating income from discontinued operations and any gains or losses from their sale
are ______ segregated in the income statement.
By what must a company divide net earnings available to common shareholders in
computing earnings per common share? Average number of common shares
outstanding
A company with net income of $450,000, 200,000 weighted-average shares of common
shares outstanding, and 10,000 shares of $5 cumulative preferred stock outstanding
would have earnings per share of $2.00 per share of common stock. True
To determine the earnings per share, ______ should be divided by the average number
of common shares outstanding? net income - preferred dividends
The standard equation for computing basic earnings per share (EPS) is ______. Basis
EPS = [Net Income - Preferred Dividends]/Weighted Average Number of Common
Shares Outstanding
On December 31, 2015 and 2014, Linda Corp. had 100,000 common shares and 10,000
$5 no-par- value cumulative preferred shares outstanding. No dividends were declared
on either the preferred or common shares in 2015 or 2014. Net income for 2015 was
$400,000. For 2015, earnings per common share amounted to ______. $3.50
Sugarland Corporation had 200,000 common shares outstanding on January 1, 2015.
They issued 30,000 additional shares on 4/1/2015 and 12,000 shares on 12/1/2015.
What is the weighted average number of shares for the basic EPS computation at the
end of 2015? 223,500 shares
Robinson Company had 1 million shares outstanding at the beginning of the year. On
April 1, Robinson issued an additional 300,000 shares. On July 1, Robinson issued
200,000 more shares. What is Robinson's weighted average number of shares
outstanding for the calculation of earnings per share? 1,325,000 shares
. What adjustment needs to be made when computing the weighted average number of
shares of common stock outstanding for a company whose shares were issued on April
, 1? The number of shares issued must be ______ multiplied by 9 and then divided
by 12.
On October 1, 2015, Sacho issued a 25% stock dividend on its common shares and paid
$500,000 cash dividends on preferred shares. Net income for the year ending December
31, 2015 was $2,000,000.
Sacho's 2015 basic EPS should be ______. $3.00
Which of the following statements is TRUE regarding the reporting of earnings per share
(EPS)? Diluted EPS must be less than or equal to basic EPS.
A complex capital structure, for purposes of determining disclosure of diluted EPS, is
distinguished from a simple capital structure by the ______. company having issued
warrants, convertible securities, or options
Examples of potentially dilutive securities include all of the following EXCEPT ______.
non-convertible bonds
In determining earnings per share (EPS), the interest expense on convertible debt that is
dilutive (net of applicable taxes) should be ______ ignored for basic EPS and added
back to net income for diluted EPS.
Crimson Corporation had 3 million shares of common stock outstanding throughout the
year in 2015. During the year, it issued five thousand, $1,000 convertible bonds with an
interest rate of 8%. These bonds were issued at par on 1/1/2015. Each bond is
convertible into 10 shares of common stock. Assuming Crimson had a net income of 2.4
million for 2015 and has an effective tax rate of 40%, what is its diluted EPS (rounded)?
$0.80
Assume that the exercise price of an option is $10 and the average market price of the
stock is $13. Assuming 999 options are outstanding during the entire year, what is the
number of shares to be added to the denominator of the diluted EPS? 231
The Widget Company had net income of $1 million for the period. There are 1 million
shares of Widget common stock outstanding. If there are 100,000 options outstanding
with an exercise price of $40, what is the diluted earnings per share for Widget common
stock if the current price of a share is $50? $0.98
