1. Doug's Discount Furniture discovered that its merchandise inventory was $100,000 less than reported at the end of the previous period when cost of goods sold was computed using a periodic method. The correcting entry is:

a.

Cost of Goods Sold	100,000
Retained Earnings		100,000

b.

Merchandise Inventory	100,000
Retained Earnings		100,000

c. No entry necessary
d.

Retained Earnings	100,000
Merchandise Inventory		100,000

2. Other comprehensive income includes

a. changes in the market value of marketable equity securities
b. changes in the market value of derivatives used as cash-flow hedges
c. unrealized translation gains and losses from translating the foreign statements of foreign units into U.S. dollars
d. all of the above

3. An extraordinary item should be reported separately on the statement of income as a component of income

a. net of income tax and before income from discontinued operations
b. net of income tax and after income from discontinued operations
c. net of income tax and from continuing operations after income taxes
d. from continuing operations before income taxes

4. Which has the greatest claim on the assets of a firm?

a. Common stock
b. Preferred stock
c. Charter stock
d. Treasury stock

5. The Prime Corporation is a new company about to issue stock. The corporation sells 2,000 shares of common stock (par value $2) at $10 per share. The journal entry is to record this transaction is:

a.

Cash	2,000
Common Stock		2,000

b.

Cash	20,000
Common Stock		4,000
Additional Paid-in Capital		16,000

c.

Cash	20,000
Owners' Liability		16,000
Common Stock		4,000

d.

Cash	20,000
Accounts Payable		20,000

6. If 10,000 stock warrants are issued to the general public for $10,000, and later those warrants and $150,000 are exchanged for 10,000 shares of no-par stock, the entry to record the exercise of the warrants would be:

a.

Cash	150,000
Common Stock Warrants	10,000
Common Stock		160,000

b.

Cash	150,000
Common Stock		140,000
Common Stock Warrants		10,000

c.

Cash	150,000
Common Stock Warrants	10,000
Common Stock		150,000
Additional Paid-in Capital-Stock Warrants		10,000

d.

Cash	150,000
Warrant Stock		150,000

7. Treasury stock can be defined as

a. unissued stock, that is shares that have never been sold by the corporation
b. designated stock, that is shares used for the specific purpose of converting preferred stock to common stock
c. investment stock, that is shares acquired from a subsidiary company
d. reacquired stock, that is outstanding shares purchased on the open market by the issuing corporation

8. (CMA adapted, Jun 87 #4) The major segments of the statement of retained earnings for a period are

a. dividends declared, prior period adjustments, and changes due to treasury stock transactions
b. prior period adjustments, before tax income or loss, income tax, and dividends paid
c. net income or loss from operations, dividends paid, and extraordinary gains and losses
d. net income or loss, prior period adjustments, and dividends paid and/or declared

9. (CMA adapted, Dec 92 #7) On December 1, Charles Company's Board of Directors declared a cash dividend of $1.00 per share on the 50,000 shares of common stock outstanding. The company also has 5,000 shares of treasury stock. Shareholders of record on December 15 are eligible for the dividend which is to be paid on January 1. On December 1, the company should

a. make no accounting entry
b. debit retained earnings for $50,000
c. debit retained earnings for $55,000
d. debit retained earnings for $50,000 and paid-in-capital for $5,000
e. debit dividends payable and credit cash

10. A stock dividend indicates

a. a permanent commitment of assets generated by reinvested earnings
b. an increase to total owner's equity
c. an attempt to shift the control of the company by diluting ownership
d. A transfer of corporate assets to shareholders without using cash

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