Question

2. Employee Stock Ownership Plans (ESOPs):

MULTIPLE CHOICE

		a. will not dilute the proportional ownership of existing shareholders.
		b. may be created for a temporary purpose.
		c. do not produce any tax advantages for plan participants.
		d. may borrow funds from a bank.

3. The following relate to Data Original in 2008. What is the ending inventory?

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

Multiple Choice

		a. $120,000
		b. $140,000
		c. $210,000
		d. $260,000

4. Which of the following will be disclosed in the reconciliation of retained earnings?

MULTIPLE CHOICE

		a. net income / net loss
		b. adjustment for an error of a prior period
		c. dividends
		d. all of the answers are correct

5. ____?____ are normally classified as a current liability on the balance sheet.

MULTIPLE CHOICE

		a. Prepaid expenses
		b. Land
		c. Inventories
		c. Accounts payable

6. ___?__ is considered a tangible asset.

MULTIPLE CHOICE

a. Equipment

b. A patent

c. A copyright

d. Goodwill

7. If the Investor Company owns 20% of the stock of Investee Company and Investee Company reports profits of $100,000, then Investor Company reports equity income of:

MULTIPLE CHOICE

		a. $80,000
		b. $20,000
		c. $40,000
		d. $60,000

8. A quasi-reorganization:

MULTIPLE CHOICE

		a. may produce a positive balance in retained earnings
		b. will restate retained earnings to zero.
		c. should appear on the income statement as part of continuing operations
		d. requires the approval of a bankruptcy court

9. Which of the following is seldomly a preferred stock characteristic?

MULTIPLE CHOICE

		a. voting rights
		b. call ability by the issuer
		c. accumulation of dividends
		d. preference in liquidation

10. Gross profit is the difference between:

MULTIPLE CHOICE

		a. net income and operating income
		b. revenues and expenses
		c. sales and cost of goods sold
		d. gross sales and sales discounts

Answer 1

Answer 2

D. May borrow funds from a bank.

Reason : The owner can have the ESOP to borrow the funds needed to buy the shares. Generally, the bank will loan to the company, which then reloans to the ESOP.

Answer 3

A. $ 120,000

Calculation: Ending inventory

= Beginning inventory +Net Purchases - Cost of goods sold

=$ 80,000 + ($ 540,000 -$10,000) -$490,000

=$ 120,000

Answer 4

D. All of the answers are correct

Reason: As retained earning account is basically used for adjustments in Net income as well as in dividend payment.

Answer 5

D. Accounts Payable

Reason: Accounts Payable are generally those accounts to which the company owe money , so it creates liability to the company to pay this amount in near future.

Answer 6

A. Equipment

Reason: A tangible asset is that which can be seen and touched . Rest of the assets given are intangible.

Answer 7

B. $ 20,000

Calculation: Investor company's equity income

= $100,000 X 20 /100

=$ 20,000

Answer 8

B. will restate retained earnings to zero.

Reason: In this a firm may eliminate a deficit in its retained earnings account and make it zero by restating it's assets, liabilities and equity in a manner similarly to bankruptcy.

Answer 9

c. Accumulation of dividends

Reason: Preference sharehokders does not have voting right . They have Preference in liquidation over equity shares but not over debentures and creditors. The correct option is their dividend is accumulated if not declared in an financial year. That type of preference shares are called cumulative preference shares.

Answer 10

C. sales and cost of goods sold

Reason: Formula for gross profit

= Sales - cost of goods sold

As in gross profit only direct expenses are deducted from sales not all expenses. And cost of goods sold only includes direct expenses.