Chapter 2 ACCY 200

The principle of consistency means that: A) the accounting methods used by an entity never change. B) the same accounting methods are used by all firms in an industry. C) the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto. D) there are no alternative methods of accounting for the same transaction. E) the balance sheet must always balance.

the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.

The going concern concept refers to a presumption that: A) the entity will be profitable in the coming year. B) the entity will not be involved in a merger within a year. C) the entity will continue to operate in the foreseeable future. D) top management of the entity will not change in the coming year. E) none of the above.

the entity will continue to operate in the foreseeable future

The going concern concept refers to a presumption that: top management of the entity will not change in the coming year. the entity will be profitable in the coming year. the entity will continue to operate in the foreseeable future. the entity will not be involved in a merger within a year.

the entity will continue to operate in the foreseeable future.

The effect of an adjustment is: to correct an entry that was not in balance. to increase the accuracy of the financial statements. to close the books. to record transactions not previously recorded.

to increase the accuracy of the financial statements

Which of these is not a limitation of financial statements? A) Qualitative data are not reflected in financial statements. B) Market values of assets are not generally reported. C) Estimates are commonly used and are sometimes inaccurate. D) It may be difficult to compare firms in the same industry because they often use different accounting methods. E) All of the above are limitations of financial statements.

All of the above are limitations of financial statements.

The balance sheet equation can be represented by: Assets = Liabilities + Stockholders' Equity Assets - Liabilities = Stockholders' Equity Net Assets = Stockholders' Equity All of the above

Assets = Liabilities + Stockholders' Equity

When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required: No adjustment will probably be required. Dr. Supplies Cr. Accounts payable Dr. Supplies Cr. Supplies expense Dr. Supplies expense Cr. Supplies

Dr. Supplies expense Cr. Supplies

Which of the following is not a correct expression of the accounting equation? A) Assets - Liabilities = Stockholders' Equity B) Net Assets = Liabilities + Stockholders' Equity C) Assets = Liabilities + Stockholders' Equity D) Net Assets = Stockholders' Equity E) All of the above are correct expressions of the accounting equation.

Net Assets = Liabilities + Stockholders' Equity

The stockholders' equity section of a balance sheet contains two major components: A) Common Stock and Additional Paid-in Capital B) Paid-in Capital and Retained Earnings C) Common Stock and Retained Earnings D) Net Income and Dividends E) Additional Paid-in Capital and Net Income

Paid-in Capital and Retained Earnings

The balance sheet is sometimes referred to as the: A) Statement of Financial Position. B) Statement of Assets and Liabilities. C) Statement of Changes in Financial Position. D) Statement of Current Affairs. E) None of the above

Statement of Financial Position

The balance sheet might also be called: Statement of Financial Position. Statement of Assets. Statement of Changes in Financial Position. None of the above.

Statement of Financial Position

Transactions are summarized in: The notes for the financial statements. The independent auditor's opinion letter. The entity's accounts. None of the above.

The entity's accounts

The time frame associated with an income statement is: a future period of time. a function of the information included in it. a past period of time. a point in time in the past.

a past period of time

The time frame associated with a balance sheet is: A) a point in time in the past. B) a one-year past period of time. C) a single date in the future. D) a function of the information included in it. E) a two-year comparative period of time.

a point in time in the past

Retained Earnings represents: par value of common stock outstanding. cash that is available for dividends. cumulative net income that has not been distributed to stockholders as dividends. the amount invested in the entity by the stockholders.

cumulative net income that has not been distributed to stockholders as dividends

A credit entry will: increase an expense account. increase an asset account. decrease paid-in capital. increase a liability account.

increase a liability account.

The effect of an adjustment on the financial statements is usually to: match revenues and assets. increase the accuracy of both the balance sheet and income statement. make the balance sheet balance. increase net income

increase the accuracy of both the balance sheet and income statement.

A debit entry will: increase the balance of a revenue account. always decrease the account balance. always increase the account balance. increase the balance of an expense account.

increase the balance of an expense account

The distinction between a current asset and other assets: A) is based on how long the asset has been owned. B) is based on amounts that will be paid to other entities within a year. C) is based on the ability to determine the current fair value of the asset. D) is based upon whether the asset is tangible or intangible. E) is based on when the asset is expected to be converted to cash, or used to benefit the entity.

is based on when the asset is expected to be converted to cash, or used to benefit the entity.

The principle stating that all expenses incurred while earning revenues should be identified with the revenues when they are earned, and reported for the same time period is the: A) cost principle. B) revenue principle. C) expense principle. D) matching principle. E) timing principle.

matching principle.

The purpose of the income statement is to show the: A) change in the fair market value of the assets from the prior income statement. B) market value per share of stock at the date of the statement. C) revenues collected during the period covered by the statement. D) net income or net loss for the period covered by the statement. E) all of the above.

net income or net loss for the period covered by the statement

The Statement of Cash Flows: is an optional financial statement. shows how cash changed during the period. shows the change in the fair value of the entity's common stock during the period. shows the dividends that will be paid in the future.

shows how cash changed during the period

Paid-in Capital represents: earnings retained for use in the business. fair value of the entity's common stock. the amount invested in the entity by the stockholders. net assets of the entity at the date of the statement.

the amount invested in the entity by the stockholders