1. When computing earnings per share on common stock, dividends on cumulative,
nonconvertible preferred stock should be:
A. deducted from net income only if the dividends were declared or paid in the current period.
B. deducted from net income regardless of the whether the dividends were not paid or declared
in the period.
C. deducted from net income only if net income is greater than the dividends.
2. Lexicon, Inc. bought a patent for $600,000 on January 2, 1997, at which time the patent had an
estimated useful life of 10 years. On February 2, 2000, it was determined that the patent’s useful
life would expire at the end of 2003. How much would Lexicon record as amortization expense
for this patent for the year ending December 31, 2001?
3. Millward Corporation’s books disclosed the following information for the year ended
December 31, 2002:
Net credit sales $1,500,000
Net cash sales 240,000
Accounts receivable at beginning of year 200,000
Accounts receivable at end of year 400,000
Millward’s accounts receivable turnover is
A. 3.75 times
B. 4.35 times
C. 5.00 times
D. 5.80 times
4. The EPS computation that is forward looking and based on assumptions about future
A. diluted EPS
B. basic EPS
C. continuing operations EPS
D. extraordinary EPS
5. On December 31, 2002, Buckeye Corporation appropriately changed its inventory valuation
method to FIFO cost from LIFO cost for both financial statement and income tax purposes. The
change will result in a $140,000 increase in the beginning inventory at January 1, 2002. Assume
a 30 percent income tax rate. The cumulative effect of this accounting change Buckeye should
report for the year ended December 31, 2002, is: