Multiple-choice questions:
a. Which of the following items would be classified as operating revenue or expense on an income statement of a manufacturing firm?
1. Interest expense
2. Advertising expense
3. Equity income
4. Dividend income
5. Cumulative effect of change in accounting principle
b. Which of the following is a recurring item?
1. Error of a prior period
2. Equity in earnings of nonconsolidated subsidiaries
3. Extraordinary loss
4. Cumulative effect of change in accounting principle
5. Discontinued operations
c. The following relate to the income statement of Growth Company for the year ended 2010.
What is the beginning inventory?
Purchases ............ $180,000
Purchase returns ........... 5,000
Sales ............... 240,000
Cost of goods sold .......... 210,000
Ending inventory .......... 30,000
1. $6,000
2. $65,000
3. $50,000
4. $55,000
5. $70,000
d. Which of the following items are considered to be nonrecurring items?
1. Equity earnings
2. Unusual or infrequent item disclosed separately
3. Discontinued operations
4. Extraordinary item
5. Cumulative effect of change in accounting principle
e. If the investor company owns 30% of the stock of the investee company and the investee company reports profits of $150,000, then the investor company reports equity income of
1. $25,000.
2. $35,000.
3. $45,000.
4. $50,000.
5. $55,000.
f. Which of the following would be classified as an extraordinary item on the income statement?
1. Loss from tornado
2. Loss on disposal of a segment of business
3. Write-down of inventory
4. Correction of an error of the current period
5. Loss from strike
g. Which of the following is true when a cash dividend is declared and paid?
1. The firm is left with a liability to pay the dividend.
2. Retained earnings is reduced by the amount of the dividend.
3. Retained earnings is increased by the amount of the dividend.
4. Retained earnings is not influenced by the dividend.
5. Stockholders’ equity is increased.
h. Which of the following is true when a 10% stock dividend is declared and distributed?
1. Retained earnings is increased.
2. Stockholders’ equity is increased.
3. Stockholders’ equity is decreased.
4. Authorized shares are increased.
5. The overall effect is to leave stockholders’ equity in total and each owner’s share of stockholders’ equity is unchanged; however, the total number of shares increases.