Chapter 3

1. The balance sheet reports:

a.	the assets, liabilities, gains, and losses for a period of time.
b.	the changes in assets, liabilities, and equity for a period of time.
c.	the assets, expenses, and liabilities as of a certain date.
d.	the probable future benefits, probable future sacrifices, and residual interest for a period of time.
e.	the financial condition of an accounting entity as of a particular date.

2. Which of the following would not appear on a conventional balance sheet?

a.	Income taxes payable
b.	Funds from operations
c.	Cash surrender value of life insurance
d.	Appropriation for contingencies (restriction of retained earnings)
e.	Patents

3. At the beginning of the year, Execon Company had total assets of $200,000, total liabilities of $110,000, and shareholders' equity of $90,000. For the year, Execon Company earned net income of $75,000 and declared cash dividends of $30,000. At the end of the year, the company had total assets of $300,000 and its shareholders' equity was at $135,000. At the end of the year, Execon Corporation had total liabilities of:

a.	$0.
b.	$45,000.
c.	$50,000.
d.	$165,000.
e.	None of the answers are correct.

4. Ownership of debt instruments of the government and other companies that can be readily converted to cash are best reported as:

a.	long-term investments.
b.	cash.
c.	marketable securities.
d.	intangibles.
e.	inventory of near-cash items.

5. Tangible assets on the balance sheet should include:

a.	equipment.
b.	inventory.
c.	trademarks.
d.	investments.
e.	accrued insurance.

6. The current asset section of the balance sheet should include:

a.	land.
b.	trademarks.
c.	investment in C Company (for purposes of control).
d.	dividends payable.
e.	work in process inventory.

7. The current liability section of the balance sheet should include:

a.	buildings.
b.	goodwill.
c.	land held for speculation purposes.
d.	accounts payable.
e.	None of the answers are correct.

8. Which of the following is not a current asset?

a.	Marketable securities
b.	Material inventory
c.	Unearned rent income
d.	Prepaid interest
e.	Accrued insurance

9. If a parent has some control over a subsidiary but the subsidiary is not consolidated, the subsidiary is accounted for as:

a.	a marketable security.
b.	an investment.
c.	a liability.
d.	a fixed asset.
e.	None of the answers are correct.

10. Which of the following is not a proper use of notes?

a.	To describe the nature and effect of a change in accounting principle, such as from FIFO to LIFO.
b.	To indicate the basis for asset valuation.
c.	To indicate the method of depreciation.
d.	To correct an improper financial statement presentation.
e.	To describe a firm's debt.

Chapter 4

1. Gross profit is the difference between:

a.	net income and operating income.
b.	revenues and expenses.
c.	sales and cost of goods sold.
d.	income from continuing operations and discontinued operations.
e.	gross sales and sales discounts.

2. Which of the following would be included in operating income?

a.	Interest income for a manufacturing firm
b.	Rent income for a leasing subsidiary
c.	Gain from sale of marketable securities for a retailer
d.	Dividend income for a service firm
e.	None of the answers are correct.

3. The following relate to Data Original in 2012. What is the ending inventory?

Purchases	$540,000
Beginning Inventory	80,000
Purchase Returns	10,000
Sales	800,000
Cost of Goods Sold	490,000

a.	$120,000
b.	$140,000
c.	$210,000
d.	$260,000
e.	none of the answers are correct

4. Changes in account balances of Multi-Plus Inc. during 2012 were:

	Increase
Assets	$420,000
Liabilities	125,000
Capital Stock	100,000
Additional Paid-In Capital	140,000
Retained Earnings	?

Assuming that there were no charges to retained earnings other than dividends of $62,000, the net income for 2010 was:

a.	($7,000)
b.	$55,000
c.	$117,000
d.	$257,000
e.	none of the answers are correct

5. When a company discontinues and disposes of a component segment of its operations, the gain or loss from disposal should be reported as:

a.	an adjustment to retained earnings.
b.	a sale of fixed assets in "other" expense.
c.	an extraordinary item.
d.	an accounting change.
e.	a special item after continuing operations and before extraordinary items.

6. If the disposal of a segment meets the criteria of a disposal of a segment, then:

a.	the loss on disposal is an extraordinary item.
b.	the loss on disposal is categorized as "other expense".
c.	the results of operations of the segment will be reported in conjunction with the gain or loss on disposal.
d.	the disposal qualifies as a change in entity, and prior years' statements presented on comparative purposes must be restated.
e.	the effects of the disposal are shown as part of operations.

7. Which of the following would be classified as an extraordinary item on the income statement?

a.	Loss from a strike
b.	Correction of an error related to a prior period
c.	Write-off of obsolete inventory
d.	Loss on disposal of a segment of business
e.	Loss from prohibition of a product

8. If a firm consolidates subsidiaries that are not wholly owned, an income statement item is created that is termed:

a.	dividend income.
b.	minority share of earnings.
c.	equity income.
d.	extraordinary.
e.	gain from sale of subsidiary.

9. Which of the following will not affect retained earnings?

a.	Declaration of a stock dividend
b.	Payment of a cash dividend previously disclosed
c.	Adjustment for an error of a prior period
d.	Net income
e.	Net loss

10. Anchor Company has 1,000,000 shares of common stock with a par value of $5. Additional paid-in capital totals $5,000,000 and retained earnings is $8,000,000. The directors declare a 10% stock dividend when the market value is $15. The reduction of retained earnings as a result of the declaration will be:

a.	$0.
b.	$500,000.
c.	$800,000.
d.	$1,000,000.
e.	$1,500,000.

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