FRA 1.5 23.05

• A. has more financial leverage than the industry.
• B. has made significant acquisitions in the past.
• C. is an electric utility.

A company chooses to change an accounting policy. This change requires that, if practical, the company restate its financial statements for:

• A. all prior periods.
• B. current and future periods.
• C. prior periods shown in a report.

At year end, a company has non-convertible debt, ordinary shares, and employee stock options outstanding. The company’s capital structure is considered to be:

• A. complex, because the company has both debt and equity.
• B. complex, because the options are convertible into ordinary shares.
• C. simple, if the options are antidilutive.

Expenses on the income statement may be grouped by:

• A. nature, but not by function.
• B. function, but not by nature.
• C. either function or nature.

For 2009, Flamingo Products had net income of $1,000,000. At 1 January 2009, there were 1,000,000 shares outstanding. On 1 July 2009, the company issued 100,000 new shares for $20 per share. The company paid $200,000 in dividends to common shareholders. What is Flamingo’s basic earnings per share for 2009?

• A. $0.80.
• B. $0.91.
• C. $0.95.

• A. 3.67.
• B. 4.00.
• C. 2.27.

For its fiscal year-end, Calvan Water Corporation (CWC) reported net income of $12 million and a weighted average of 2,000,000 common shares outstanding. The company paid $800,000 in preferred dividends and had 100,000 options outstanding with an average exercise price of $20. CWC’s market price over the year averaged $25 per share. CWC’s diluted EPS is closest to:

• A. $5.33.
• B. $5.54.
• C. $5.94.