Chapter 2
During the month, Meridian Company had the following cash transactions: Cash collected from customers $ 12,500 Cash received from a loan 8,000 Cash paid for wages payable (5,750) Cash paid for the purchase of a building (15,000) Cash received for the issuance of new shares of stock 2,600 Cash received from sale of land 6,400 Cash paid for rent (2,500) Cash paid for dividends (1,500) Given the above information, compute cash flow from investing activities.
($8,600)
An independent audit report is usually issued by
A certified public accountant
Expenses generally cause
A decrease in net assets
The idea that certain figures on an operating statement help to explain changes in figures on comparative balance sheets is referred to as
Articulation
The basic accounting equation is _____
Assets = Liabilities + Owner's Equity
The idea that information becomes more useful when it can be related to a benchmark or a standard is referred to as
Comparability
The notion that when doubt exists concerning two or more reporting alternatives, users should select the alternative with the least favorable impact on reported income, assets, and liabilities is referred to as
Conservatism
Which of the following classifications refers to those activities whereby cash is obtained or repaid to owners and creditors?
Financing
The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or a year, is called a(n)____
Income statement
Whether an item is big enough that proper accounting will make a difference to users of accounting information is referred to as
Materiality
The notion that information will be more useful if it will impact a decision is referred to as
Relevance
Which of the following is NOT one of the four general types of financial statement notes?
Supplementary information required by the Internal Revenue Service (IRS)
Which of the following is an example of additional information about summary totals that would be explained in notes to the financial statements?
The description of all the individual items that comprise notes payable
Which of the following is an example of a disclosure of information NOT recognized that would be explained in the notes to the financial statements?
The disclosure of the uncertain, potential outcome of a lawsuit
Which of the following is an example of a significant accounting policy that would be explained in the notes to the financial statements?
The method used to estimate depreciation on a piece of equipment
Which of the following financial statement shows an entity's cash receipts and payments?
The statement of cash flows
Which of the following is NOT one of the three primary financial statements?
The statement of retained earnings
True or False. A borrower benefits from providing financial information regarding income and expenses in the form of a lower interest rate on the loan because of reduced uncertainty for the leader with regard to repayment.
True
True or False. One reason for a company's preparing and providing financial statements is to reduce uncertainty for an investor regarding the firm's future financial performance.
True
revenue causes
an increase in net assets
Which of the following financial statement provides a picture of the enterprise at a particular point in time?
balance sheet
Which of the following distinguishes between current and long-term assets?
classified balance sheet
costs that are incurred during the normal operations of a business to generate revenues are called
expenses
Expenses and revenue accounts appear on the
income statement
The accuracy of the information contained in the financial statement is the responsibility of the
management
Which of the following would be considered a long-term liability?
mortgage payable
Which of the following is an overall measure of the performance of a business entity's activities?
net income (or net loss)
Vital information that CANNOT be captured solely by dollar amounts is reported in a firm's
notes to financial statements
Which of the following is a primary use of cash?
operating expenses
In completing an audit of a company's financial statements, auditors
provided some assurance that the financial statement are not misleading
Which of the following activities would be classified as a financing activity?
repayment of a loan
Which of the following are the two economic factors that enable us to trust an independent auditor despite the fact that the auditor was hired by the company being audited?
reputation of auditor and risk of lawsuits
What will increase from the sale of goods or services?
revenue
The idea that the activities of the entity are to be separated from those of the individual owner is the___
separate entity concept
