a) What is considered insider trading?

Multiple Choice

• All of the other statements describe insider trading.

• Marlene, an individual investor, buys shares in a company because her financial analysis of the company suggests that it is undervalued.

• Bill buys shares after the company's earnings announcement because he personally knows the auditor who audited the company's earnings announcement / press release.

• Chris, a hedge fund manager, purchases a 5% stake in a company because he wants to install his colleagues on to the company's board of directors.

• Karen sells shares in a company before the earnings announcement because her brother-in-law, who's the CEO, said that EPS will fall short of market expectations.

b).

Which of the following statements is true about the classified income statement?

Multiple Choice

• Income tax expense is subtracted from operating income to obtain pre-tax income.

• Net income is computed by subtracting operating expenses from gross profit.

• Cost of goods sold is the difference between net sales revenue and gross profit.

• Gross sales revenue is the first line of the income statement; contra-revenues is the second line; and net sales revenue is the third line.

• Dividend expense is classified as a non-operating (other) item on the income statement.