Chap010 - Explanatory Notes and Other Financial Information...

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Explanatory Notes and Other Financial Information SOLUTIONS: E10-1. Class discussion can focus on the importance of these items to a reader's full understanding of the company's financial statements (financial position, results of operations, and cash flows). E10-2. Note especially the acceptance of responsibility for the financial statements, and the statement about the company's system of internal control. E10-3. The auditors' opinion is that the identified financial statements present fairly , in all material respects (emphasis added), the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Thus, the auditor does guarantee that the statements are free of immaterial errors (only that they are free of material errors) or that the statements present the financial position, results of operations, and cash flows perfectly (only that they present the statements fairly) . E10-4. The standard three-paragraph independent auditors' report is not at all an indicator of a company's future financial success or future cash dividends. However, if the auditor has substantial doubt about an entity's ability to continue as a going concern, there will be an explanatory paragraph to that effect. E10-5. a. Original earnings per share is $3.12. To reflect a 3 for 1 stock split, divide by 3. Adjusted EPS = $1.04 b. For 2002, 2000 earnings per share as adjusted in 2001 will have to be adjusted again by dividing by 2. Adjusted EPS for 2000, to be reported in 2002 = $1.04 / 2 = $0.52 c. To reflect a 10% stock dividend, divide unadjusted earnings per share by 1.10. Adjusted EPS = $3.12 / 1.10 = $2.84 E10-6. a. Net income for 2001 = $925,980. Stock dividends and stock splits do not cause changes to reporting earnings amounts. b. Earnings per share = Net income / Weighted average number of shares outstanding = $925,980 / 268,400 = $3.45 c. For the calculation in 2002 the weighted average number of shares outstanding in 2001 must reflect the 3 for 1 stock split in 2002. EPS = Net income / Weighted average number of shares outstanding = $925,980 / (268,400 * 3) = $1.15 E10-7. Earnings per share, as restated. .................................................................... $0.60 Multiply by 2 to reflect 2 for 1 stock split. .................................................. $1.20 Multiply by 1.05 to reflect 5% stock dividend. ............................................ $1.26
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Chapter 10 Proof: Original earnings per share. ............................................................. $1.26 Adjust for stock split (divide by 2). ............................................................. $0.63
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This note was uploaded on 04/04/2009 for the course ACC ACC/539 taught by Professor Michaeldonohoe during the Fall '05 term at University of Phoenix.

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Chap010 - Explanatory Notes and Other Financial Information...

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