ACCT 2100 Survey in Accounting Ch 2

Rearrange the following accounts or captions in the order in which they appear on the income statement: -Income before taxes (1) -Net sales (2) -Income from operations (3) -Gross profit (4)

-2, 4, 3, 1

The balance sheet: -As of the end of one period is the balance sheet at the beginning of the next period -Can be prepared for any period of time, but is usually prepared for a month or for a year -Is usually prepared for a fiscal year -Is the link between last year's income statement and this year's income statement

-As of the end of one period is the balance sheet at the beginning of the next period

The four concepts/principles that relate to the financial statements are: -Consistency, full disclosure, materiality, and conservatism -Consistency, full disclosure, matching, and accrual -Materiality, conservatism, matching, and going concern -Materiality, full disclosure, objectivity, and going concern

-Consistency, full disclosure, materiality, and conservatism

Most assets are not recorded at their current market values because of the limitations imposed by the _______ principle

-Cost

Selling, general, and administrative expenses include: -Income taxes -Cost of goods sold -Depreciation expense -Interest expense

-Depreciation expense

Gross profit: (Select all that apply.) -Is sometimes referred to as gross margin -Is often referred to as income from operations -Represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income -Is an income statement subtotal that results from subtracting selling, general, and administration expenses from net sales

-Is sometimes referred to as gross margin -Represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income

Which of the following statements are true? (Select all that apply.) -Assets are amounts owed to other entities -Liabilities are amounts owed to other entities -Liabilities are claims against the firm by its creditors -Liabilities are present obligations to transfer assets or provide services to other organizations -Stockholders' equity is the amount owed to other entities.

-Liabilities are amounts owed to other entities -Liabilities are claims against the firm by its creditors -Liabilities are present obligations to transfer assets or provide services to other organizations

Each of the following statements about net sales is true, except: -Net sales results from selling a product or providing a service to a customer -Net sales includes only credit sales, not cash sales -Net sales is frequently called sales revenue, or just revenue -Net sales represents the amount of sales of merchandise to customers less any sales returns

-Net sales include only credit sales, not cash sales

The three activity categories in the statement of cash flows are: -Investing, financing, and dividends -Gross profit, investing, and financing -Operating, investing, and dividends -Operating, investing, and financing

-Operating, investing, and financing

The income statement reports all of the following account types except: -Expenses -Losses -Revenues -Profits

-Profits

Shareholders receive _______ of stock as evidence of their ownership interest in a corporation

-Shares

The balance sheet is sometimes called the: -Statement of financial position -Income statement -Statement of cash flows -Statement of retained earnings

-Statement of financial position

The investments by and distributions to owners during the period are reported on the: -Income statement -Balance sheet -Statement of cash flows -Statement of stockholders' equity

-Statement of stockholders' equity

True or false: The value of a management team or of the morale of the workforce is not included as a balance sheet asset because it cannot be objectively measured

True

Assets are _______ probable future economic benefits obtained or controlled by a particular entity as a result of _______ transactions or events

-Probable; past

Most companies will include selected dates from their balance sheets and income statements of at least: -25 years -5 years -2 years -10 years

-5 years

Which of the following items are normally included as key components of a corporation's annual report? (Select all that apply.) -A 5-year (or longer) summary of key financial data -The report of the external auditor's examination of the financial statements -A corporate structure chart showing line and staff reporting responsibilities of all key personnel employed by the reporting firm -The notes to the financial statements -The reporting firm's operating budget for the next fiscal year

-A 5-year (or longer) summary of key financial data -The report of the external auditor's examination of the financial statements -The notes to the financial statements

A = L + SE is called the _______ _______

-Accounting equation

Assets include: (Select all that apply.) -Accounts receivable -Merchandise inventory -Cash -Equipment -Accounts Payable -Cost of goods sold -Short-term debt

-Accounts receivable -Merchandise inventory -Cash -Equipment

The two main components of paid-in capital are common stock and: -Par value per share -Additional paid-in capital -Net income -Retained earnings

-Additional paid-in capital

Transactions: (Select all that apply.) -Involve the selection of alternative methods of reflecting the effects of certain accounts -Are the starting point in the accounting process that will end with the preparation of financial statements -Can be seen as the bricks that build financial statements

-Are the starting point in the accounting process that will end with the preparation of financial statements -Can be seen as the bricks that build financial statements

Current liabilities: -Include accounts payable, other accrued liabilities and retained earnings -Are those liabilities that are likely to be paid with cash within one year of the balance sheet date -Are those liabilities that are likely to be paid in cash within two years of balance sheet -Include accounts payable, short-term debt, and long-term debt

-Are those liabilities that are likely to be paid with cash within one year of the balance sheet date

Stockholders' equity is the ownership right of the stockholders in the _______ that remain after subtracting the _______ liabilities of the corporation

-Assets; liabilities

Estimates are frequently made in accounting for each of the following items, except: -Warranty costs -Pension expense -Depreciation of buildings and equipment -Cash receipts from customers

-Cash receipts from customers

Which of the following statements is true regarding the statement of cash flows? -Payment of cash dividends on common stock is an operating use (decrease) of cash -Cash received from the sale of long-term debt is a financing source (increase) of cash -Cash received from the sale of buildings or equipment is an investing source (increase) of cash -Depreciation expense is added back to net income in the operating activities section of the statement of cash flows -The increase in accounts payable for the year is shown as an operating source (increase) of cash

-Cash received from the sale of long-term debt is a financing source (increase) of cash -Cash received from the sale of buildings or equipment is an investing source (increase) of cash -Depreciation expense is added back to net income in the operating activities section of the statement of cash flows -The increase in accounts payable for the year is shown as an operating source (increase) of cash

Companies are not allowed to switch back and forth between alternative accounting methods from year to year because of the _______ concept

-Consistency

The _______ principle refers to the fact that transactions are recorded at their _______ (historical) cost of the entity as measured in dollars

-Cost; original

Retained earnings represents the _______ net income of the entity that has been retained for use in the business

-Cumulative

The statement of operations, statement of earnings, and the profit and loss statement are alternative names for the _______ statement

-Income

Stockholders' equity is: -Decreased by the repayment of short-term debt during the year -Increased by additional long-term borrowings during the year -Decreased by the purchase of land during the year -Increased by additional investments by stockholders during the year

-Increased by additional investments by stockholders during the year

Net worth: -Is a misleading term because assets and liabilities are not generally "worth" the amounts reported on the balance sheet -Is another term for total assets -Means that assets and liabilities are generally reported on the balance sheet at their market values -Implies that the net assets are worth the amount reported on the balance sheet

-Is a misleading term because assets and liabilities are not generally "worth" the amounts reported on the balance sheet

Income from operations: -Represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income -Is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred -Is normally about half as much as gross profit -Appears on the income statement after income before taxes

-Is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred

A firm's fiscal year: (Select all that apply.) -Must end at the end of a calendar month -Is often the same as the calendar year -Can be any 12-month period -Is the annual period used for reporting purposes -Cannot be for 52 weeks in some years and 53 weeks in other years

-Is often the same as the calendar year -Can be any 12-month period -Is the annual period used for reporting purposes

Which of the following is not one of the three principal forms of business organization? -Partnership -LLC -Proprietorship -Corporation

-LLC

Advantages of proprietorships include all of the following except: -Owner is his or her own boss -Ease of formation -Owner has unlimited personal liability -No formal prerequisites to begin operations

-Owner has unlimited personal liability

The two main components reported on the statement of changes in stockholders' equity are: -Common stock and net income -Paid-in capital and net income -Common stock and retained earnings -Paid-in capital and retained earnings

-Paid-in capital and retained earnings

The stated value per share of no-par-value stock operates in the same way as the _______ value per share

-Par

Cost of good sold: (Select all that apply.) -Represents the seller's maximum "cushion" from which all other expenses must be met in other to have net income -Is subtracted from net sales to determine income from operations -Represents the total cost of merchandise sold to customers -Is frequently called cost of sales or cost of production sold -Is normally shown as a separate expense because of it's significance

-Represents the total cost of merchandise sold to customers -Is frequently called cost of sales or cost of production sold -Is normally shown as a separate expense because of it's significance

In the horizontal model representation of the financial statements, the arrow going from net income to stockholders equity means that net income affects the _______ _______ account within stockholders' equity.

-Retained earnings

Alternative names for the statement of changes in stockholders' equity include all of the following except the: -Statement of changes in capital stock -Statement of changes in owners' equity -Statement of cash flows -Statement of changes in retained earnings

-Statement of cash flows

If assets total $15,000 and liabilities total $9,000, then -Stockholders' equity totals $24,000 -Liabilities are undervalued by $6,000 -Assets are overvalued by $6,000 -Stockholders' equity totals $6,000

-Stockholders' equity totals $6,000

Revenue is recognized at the time of sale, which is when: -The cash payment from the buyer to seller is made -A discount has been provided for prompt payment -Title passes to the buyer, or when the services are performed -The cash payment from the seller to buyer is made

-Title passes to the buyer, or when the services are performed

Proprietorships and partnerships have the _______ liability characteristic in common

-Unlimited

When a subsidiary is not wholly owned, the other stockholders of the subsidiary are referred to as _______ stockholders, and their ownership rights are referred to as the _______ interest

Minority; noncontrolling