Chapter 2

8. The balance sheet equation can be represented by: A. Assets = Liabilities + Stockholders' Equity. B. Assets - Liabilities = Stockholders' Equity. C. Net Assets = Stockholders' Equity. D. All of these.

D. All of these.

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

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

Which of the following is not a transaction to be recorded in the accounting records of an entity? A. Investment of cash by the owners. B. Sale of product to customers. C. Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive. D. Receipt of services from a "quick-print" shop in exchange for the promise to provide advertising design services of equivalent value.

Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive.

2. The balance sheet might also be called: A. Statement of Financial Position. B. Statement of Assets. C. Statement of Changes in Financial Position. D. None of these.

Statement of Financial Position.

15. Expenses are: A. cash disbursements. B. decreases in net assets from uninsured accidents. C. decreases in net assets from dividends to stockholders. D. decreases in net assets resulting from usual operating activities.

decreases in net assets resulting from usual operating activities.

14. Revenues are: A. cash receipts. B. increases in net assets from selling a product. C. increases in net assets from occasional sales of equipment. D. increases in net assets from selling common stock.

increases in net assets from selling a product.

33. Accrual accounting: A. is designed to match revenues and expenses. B. results in the balance sheet showing the fair value of the entity's assets. C. means that expenses are recorded when they are paid. D. cannot result in the entity having net income unless cash is received from customers.

is designed to match revenues and expenses.

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

shows how cash changed during the period.

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

the amount invested in the entity by the stockholders.

28. At the beginning of the year, paid-in capital was $82 and retained earnings was $47. During the year, the stockholders invested $24 and dividends of $6 were declared and paid. Retained earnings at the end of the year were $52. Net income for the year was: A. $10 B. $11 C. $15 D. $20

$11

27. At the beginning of the year, paid-in capital was $82 and retained earnings was $47. During the year, the stockholders invested $24 and dividends of $6 were declared and paid. Retained earnings at the end of the year were $52. Total stockholders' equity at the end of the year was: A. $82 B. $94 C. $106 D. $158

$158

17. The Statement of Changes in Stockholders' Equity shows: A. the change in cash during a year. B. revenues, expenses, and liabilities for the period. C. net income and dividends for the period. D. paid-in capital and long-term debt at the end of the period.

net income and dividends for the period.

34. Which of the following accounting methods accomplishes much of the matching of revenues and expenses? A. Match accounting. B. Cash accounting. C. Accrual accounting. D. Full disclosure accounting.

Accrual accounting.

10. Accumulated depreciation on a balance sheet: A. is part of stockholders' equity. B. represents the portion of the cost of an asset that is assumed to have been "used up" in the process of operating the business. C. represents cash that will be used to replace worn out equipment. D. recognizes the economic loss in value of an asset because of its age or use.

B. represents the portion of the cost of an asset that is assumed to have been "used up" in the process of operating the business.

7. Current U.S. Generally Accepted Accounting Principles and auditing standards require the financial statements of an entity for the reporting period to include: A. Earnings and gross receipts of cash for the period. B. Projected earnings for the subsequent period. C. Financial position at the end of the period. D. Current fair values of all assets at the end of the period.

Financial position at the end of the period.

5. Which of the following is not a principal form of business organization? A. Partnership. B. Sole proprietorship. C. Limited unregistered business. D. Corporation. E. None of these.

Limited unregistered business.

Additional paid-in-capital represents: A. The difference between the total amounts invested by the stockholders and the par or stated value of the stock. B. Distributions of earnings that have been made to the stockholders. C. Distributions of earnings that have not been made to the stockholders. D. The summation of the total amount invested by the stockholders and the par or stated value of the stock.

The difference between the total amounts invested by the stockholders and the par or stated value of the stock.

36. The principle of full disclosure pertains to: A. The entity fully discloses all client data. B. The entity fully discloses all proprietary information. C. The entity fully discloses all necessary information to prevent a reasonably astute user of financial statements from being misled. D. The entity fully discloses all necessary information to prevent all users of financial statements from being misled. E. All of these.

The entity fully discloses all necessary information to prevent a reasonably astute user of financial statements from being misled.

3. Transactions are summarized in: A. The notes for the financial statements. B. The independent auditor's opinion letter. C. The entity's accounts. D. None of these.

The entity's accounts.

9. Stockholders' equity refers to which to the following? A. A listing of the organization's assets and liabilities. B. The ownership right of the stockholder(s) of the entity. C. Probable future sacrifices of economic benefits. D. All of these. E. None of these.

The ownership right of the stockholder(s) of the entity.

30. Consolidated financial statements report financial position, results of operations, and cash flows for: A. a parent corporation and its subsidiaries. B. a parent corporation alone. C. two corporations that are owned by the same individual. D. a parent corporation and its 100% owned subsidiaries only.

a parent corporation and its subsidiaries.

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

a past period of time.

6. 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.

a point in time in the past.

32. Matching revenues and expenses refers to: A. having revenues equal expenses. B. recording revenues when cash is received. C. accurately reflecting the results of operations for a fiscal period. D. recording revenues when a product is sold or a service is rendered.

accurately reflecting the results of operations for a fiscal period.

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

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

4. A fiscal year: A. is always the same as the calendar year. B. is frequently selected based on the firm's operating cycle. C. must always end on the same date each year. D. must end on the last day of a month.

is frequently selected based on the firm's operating cycle.

16. The purpose of the income statement is to show the: A. change in the fair 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.

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

31. A concept or principle that relates to transactions is: A. materiality. B. full disclosure. C. original cost. D. consistency.

original cost.

12. The income statement shows amounts for: A. revenues, expenses, losses, and liabilities. B. revenues, expenses, gains, and fair value per share. C. revenues, assets, gains, and losses. D. revenues, gains, expenses and losses.

revenues, gains, expenses and losses.

37. The balance sheet of an entity: A. shows the fair value of the assets at the date of the balance sheet. B. reflects the impact of inflation on the replacement cost of the assets. C. reports plant and equipment at its opportunity cost. D. shows amounts that are not adjusted for changes in the purchasing power of the dollar.

shows amounts that are not adjusted for changes in the purchasing power of the dollar.

35. 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.

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

29. 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.

the entity will continue to operate in the foreseeable future.

23. On January 31, an entity's balance sheet showed net assets of $1,025 and liabilities of $225. Stockholders' equity on January 31 was: A. $800 B. $1,025 C. $1,250 D. $225

$1,025

24. At the end of the year, retained earnings totaled $1,700. During the year, net income was $250, and dividends of $120 were declared and paid. Retained earnings at the beginning of the year totaled: A. $2,070 B. $1,330 C. $1,230 D. $1,570

$1,570

26. At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and stockholders' equity of $836. During the year, assets increased $74 and liabilities decreased $38. Liabilities at the end of the year totaled: A. $490 B. $528 C. $836 D. $910

$490

22. On January 31, an entity's balance sheet showed total assets of $750 and liabilities of $250. Stockholders' equity at January 31 was: A. $500 B. $1,000 C. $750 D. $250

$500

25. At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and stockholders' equity of $836. During the year, assets increased $74 and liabilities decreased $38. Stockholders' equity at the end of the year totaled: A. $836 B. $872 C. $948 D. $1,438

$948