1. Treasury stock is best classified as:

A) A current asset.

B) A long-term investment.

C) A contra liability.

D) A reduction of stockholders’ equity.

E) A reduction of retained earnings.

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. Which of the following is a current liability?

A) Prepaid insurance.

B) Account receivable.

C) Unearned rent revenue.

D) Building.

E) Common stock.

4. Which of the following is a recurring item?

A) Equity in earnings of nonconsolidated subsidiaries.

B) Error of a prior period.

C) Discontinued operations.

D) Extraordinary gain.

E) Cumulative effect of change in accounting principle.

5. 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.

6. Which of the following is not true about a stock dividend?

A) With a stock dividend, the firm issues a percentage of outstanding stock as new shares to existing shareholders.

B) The overall effect of a stock dividend is to leave total stockholders’ equity and each owner’s share of stockholders’ equity unchanged.

C) In theory, with a stock dividend, total market value considering all outstanding shares should not change.

D) Since the number of shares changes under a stock dividend, any ratio based on the number of shares must be restated.

E) The accounting for a stock dividend, assuming the distribution is relatively small, requires that the par value of the stock be removed from retained earnings.

7. Tangible assets on the balance sheet should include:

A) Equipment.

B) Taxes payable.

C) Trademarks.

D) Bonds payable.

E) None of the answers are correct.

8. 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.

9. 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.

10. 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.