Chapter 2

Which of the following are included in assets? 1. Cash 2. Short-term debt 3. Accounts receivable 4. Cost of goods sold 5. Merchandise inventory 6. Accounts payable 7. Equipment

1. Cash 3. Accounts receivable 5. Merchandise inventory 7. Equipment

Select all that apply Which of the following calculations are made on the income statement? 1. Income from operations minus interest expense equals income before taxes. 2. Income before income taxes minus income taxes equals net income. 3. Gross profit minus the cost of goods sold equals income from operations. 4. Earnings per share of common stock outstanding equals net income minus the number of shares of common stock outstanding. 5. Gross profit minus selling, general, and administrative expenses equals income from operations. 6. Net sales minus the cost of goods sold equals gross profit.

1. Income from operations minus interest expense equals income before taxes. 2. Income before income taxes minus income taxes equals net income. 3. Gross profit minus the cost of goods sold equals income from operations. 5. Gross profit minus selling, general, and administrative expenses equals income from operations. 6. Net sales minus the cost of goods sold equals gross profit.

Select all that apply Which of the following calculations are made on the income statement? 1. Income from operations minus interest expense equals income before taxes. 2. Gross profit minus the cost of goods sold equals income from operations. 3. Income before income taxes minus income taxes equals net income. 4. Earnings per share of common stock outstanding equals net income minus the number of shares of common stock outstanding. 5. Net sales minus the cost of goods sold equals gross profit. 6. Gross profits minus selling, general, and administrative expenses equals income from operations.

1. Income from operations minus interest expense equals income before taxes. 3. Income before income taxes minus income taxes equals net income. 5. Net sales minus the cost of goods sold equals gross profit.

Which of the following statements are true regarding income from operations? Select all that apply. 1. It is frequently called earnings from operations. 2. It is frequently referred to as net margin. 3. It is a subtotal on the income statement that is not affected by the firm's tax rate or by the amount of interest expense incurred. 4. It is frequently called operating income. 5. It appears on the income statement after income before taxes.

1. It is frequently called earnings from operations. 3. It is a subtotal on the income statement that is not affected by the firm's tax rate or by the amount of interest expense incurred. 4. It is frequently called operating income.

Select all that apply Which statements are true regarding the cost of goods sold? 1. It is normally shown as a separate expense because of its significance. 2. It represents the seller's maximum "cushion" from which all other expenses must be met in order to have net income. 3. It is subtracted from gross profit to determine net income. 4. It represents the total cost of merchandise sold to customers. 5. It is frequently called cost of sales or cost of products sold.

1. It is normally shown as a separate expense because of its significance. 4. It represents the total cost of merchandise sold to customers. 5. It is frequently called cost of sales or cost of products sold.

Which statements are true regarding the cost of goods sold? Select all that apply 1. It is normally shown as separate expense because of its significance. 2. It represents the total cost of merchandise sold to customers. 3. It is subtracted from gross profit to determine net income. 4. It is frequently called cost of sales or cost of products sold. 5. It represents the seller's maximum "cushion" from which all other expenses must be met in order to have net income.

1. It is normally shown as separate expense because of its significance. 2. It represents the total cost of merchandise sold to customers. 4. It is frequently called cost of sales or cost of products sold.

Select all that apply Which statements are true regarding gross profit? 1. It is sometimes referred to as gross margin. 2. It is often referred to as income from operations. 3. It is an income statement subtotal that results from subtracting selling, general, and administration expenses from net sales. 4. It represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income.

1. It is sometimes referred to as gross margin. 4. It represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income.

Select all that apply Which of the following statements are true regarding net assets? 1. Net assets are equal to stockholders' equity. 2. Net assets are equal to assets plus liabilities. 3. Net assets is another term for current liabilities. 4. Net assets are equal to assets minus liabilities. 5. Net assets is another term for net worth. 6. Net assets are equal to total revenue.

1. Net assets are equal to stockholders' equity. 4. Net assets are equal to assets minus liabilities. 5. Net assets is another term for net worth.

Which of the following statements are not true about net sales? (Select all that apply). 1. Net sales represent the difference between gross profit and cost of goods sold. 2. Net sales result from selling a product or providing a service to a customer. 3. Net sales include only credit sales, not cash sales. 4. Net sales represent the amount of sales of merchandise to customers, less any sales returns.

1. Net sales represent the difference between gross profit and cost of goods sold. 3. Net sales include only credit sales, not cash sales.

Select all that apply Which of the following are other names for the income statement? 1. Statement of operations 2. Statement of financial position 3. Statement of earnings 4. Statement of cash flow 5. Profit and loss statement

1. Statement of operations 3. Statement of earnings 5. Profit and loss statement

Select all that apply Which of the following are considered selling, general, and administrative expenses (represent the operating expenses of the entity)? 1. Wages expense 2. Cost of goods sold 3. Advertising expense 4. Income taxes 5. Interest expense

1. Wages expense 3. Advertising expense 6. Depreciation expense

Gross profit: 1. results from subtracting cost of goods sold from net sales. 2. is often referred to as income from operations 3. is an income statement subtotal that results from subtracting selling, general, and administration expenses from net sales. 4. represents the amount of sales of merchandise to customers less sales return.

1. results from subtraction cost of goods sold from net sales.

Which statement is true about a balance sheet? 1. A balance sheet lists revenues, expenses, losses, and gains. 2. A balance sheet is generally prepared as of the end of a fiscal reporting period. 3. A balance sheet as of the end of one period is the balance sheet at the beginning of the previous period. 4. A balance sheet reports results for a period of time.

2. A balance sheet is generally prepared as of the end of a fiscal reporting period.

Select all that apply Which of the following statements are true about the assets of a firm? 1. Accounts receivable are not assets because the cash has not yet been received by a firm. 2. Assets result from past transactions or events of the firm. 3. Assets represent the amount of resources controlled by the firm. 4. The economic benefits associated with assets must be obtained or controlled by the firm. 5. Assets are probable future economic benefits to the firm. 6. Assets must be tangible to be recorded on the balance sheet of a firm.

2. Assets result from past transactions or events of the firm. 3. Assets represent the amount of resources controlled by the firm. 4. The economic benefits associated with assets must be obtained or controlled by the firm. 5. Assets are probably future economic benefits to the firm.

Which of the following statements are true regarding stockholders' equity? 1. It is sometimes referred to as net income. 2. It is sometimes referred to as net worth. 3. It is measured as the fair value of the shareholders' equity interests in the corporation's assets. 4. It is sometimes referred to as owners' equity. 5. It is sometimes referred to as net assets. 6. It is sometimes referred to as net sales. 7. It is the equity in the assets that remain after subtracting the liabilities.

2. It is sometimes referred to as net worth. 4. It is sometimes referred to as owners' equity. 5. It is sometimes referred to as net assets. 7. It is the equity in the assets that remain after subtracting the liabilities.

Current assets include cash and other assets: 1. That can be converted into cash after one year 2. That are likely to be converted into cash or used to benefit the entity within one year 3. Such as accounts receivable, merchandise inventory, and buildings 4. That can be easily converted into cash or are highly marketable

2. That are likely to be converted into cash or used to benefit the entity within one year

Selling, general, and administrative expenses include: 1. interest expense 2. depreciation expense 3. income taxes 4. cost of goods sold

2. depreciation expense

Cost of goods sold: 1. is subtracted from sales to determine net sales. 2. represents the total cost of merchandise sold to customers. 3. represents the seller's maximum "cushion" from which all other expenses must be met in order to have net income. 4. represents the amount of sales of merchandise to customers, less any sales returns.

2. represents the total cost of merchandise sold to customers.

Select all that apply Which of the following statements are true about liabilities of a firm? 1. Liabilities represent the amount of resources controlled by the firm. 2. Liabilities are sometimes referred to as owners' equity. 3. Accounts payable is an example of liabilities. 4. Liabilities are probable future economic benefits. 5. Liabilities are probable future sacrifices of economic benefits.

3. Accounts payable is an example of liabilities. 5. Liabilities are probable future sacrifices of economic benefits.

Which of the following statements is not true regarding accounts receivable? 1. Accounts receivable is reported as current asset on the balance sheet. 2. Accounts receivable represents amount due from a customer who has purchased merchandise on credit. 3. Accounts receivable is recorded for the company's gross profit on credit sales. 4. Accounts receivable is normally due within a specified period of time.

3. Accounts receivable is recorded for the company's gross profit on credit sales.

Which of the following is a current asset? Multiple choice question. 1. Land 2. Equipment 3. Cash 4. Accounts payable

3. Cash

Which of the following is true regarding the income statement? 1. Gross profit, income from operations, and income before taxes are all subtotals on the income statement. 2. Gross profit, income from operations, and net income are all subtotals on the income statement. 3. Gross profit, interest expense, and income taxes are all subtotals on the income statement. 4. Net sales, incomes from operations, and income taxes are revenues on the income statement.

3. Gross profit, interest expense, and income taxes are all subtotals on the income statement.

An entity's earnings for a reporting period are reported on the: 1. Statement of cash flows 2. Balance sheet 3. Income statement 4. Statement of stockholders' equity

3. Income statement

Which statement is true regarding the income statement? 1. It identifies the sources and uses of cash during the year. 2. It is a listing of an entity's assets, liabilities, and stockholders' equity at a point in time. 3. It is a link between the balance sheets at the beginning and end of the year. 4. It shows an entity's financial position.

3. It is a link between the balance sheets at the beginning and end of the year.

Select all that apply Which of the following statements are true regarding net assets? 1. Net assets is another term for current liabilities. 2. Net assets are equal to assets plus liabilities. 3. Net assets is another term for net worth. 4. Net assets are equal to assets minus liabilities. 5. Net assets are equal to total revenue. 6. Net assets are equal to stockholders' equity.

3. Net assets is another term for net worth. 4. Net assets are equal to assets minus liabilities. 6. Net assets are equal to stockholders' equity.

Current liabilities: 1. include accounts payable, short-term debt, and long-term debt 2. are those liabilities that are likely to be paid in cash within two years of the balance sheet date 3. are those liabilities that are likely to be paid with cash within one year of the balance sheet date 4. include accounts payable, other accrued liabilities, and retained earnings

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

Income from operations: 1. represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income 2. is the difference between the net sales and the cost of goods sold 3. is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred 4. appears on the income statement after income before taxes

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

Alternative names used to describe the income statement include all of the following except the: 1. statement of operations 2. statement of earnings 3. statement of financial position 4. profit and loss statement

3. statement of financial position

Davy Ltd. borrows money from a bank that has to be repaid within 3 months. For this transaction, Davy Ltd. debited the cash account and credited the short-term debt account in its book of accounts. Therefore, the short-term debt account is an example of Blank______. 1. A current asset 2. Stockholders' equity 3. A noncurrent liability 4. A current liability 5. A noncurrent asset

4. A current liability

The balance sheet: 1. Can be prepared for any period of time but is usually prepared for a month or for a year 2. Is usually prepared for a fiscal year 3. Is the link between last year's income statement and this year's income statement 4. At the end of one period is the balance sheet at the beginning of the next period

4. At the end of one period is the balance sheet at the beginning of the next period

Net sales: 1. Represent only the amount of cash sales of merchandise to customers, less any sales returns 2. Are normally at least twice as much as gross profit 3. Are normally greater than gross sales because of sales returns 4. Represent the amount of sales of merchandise to customers, less any sales returns

4. Represent the amount of sales of merchandise to customers, less any sales returns

The income statement reports all of the following account types except: 1. revenues 2. gains 3. expenses 4. assets 5. losses

4. assets

Alternative names for the statement of changes in stockholders' equity include all of the following except the: 1. statement of changes in retained earnings. 2. statement of changes in capital shock. 3. statement of changes in owners' equity. 4. statement of cash flows.

4. statement of cash flows.

Which of the following are alternative names for the statement of changes in stockholders' equity? 1. The statement of changes in financial position 2. This is the name formally used to describe what is now called the statement of cash flows. 3. The statement of changes in net worth 4. The statement of financial position 5. The statement of changes in capital stock 6. The statement of changes in owners' equity 7. The statement of changes in retained earnings

5. The statement of changes in capital stock 6. The statement of changes in owners' equity 7. The statement of changes in retained earnings

Stockholders' equity is the ownership right of the stockholders in the __________ that remain after subtracting the ___________ of the corporation.

assets; liabilities

Revenues, expenses, gains, and losses are reported on the ___________ ______________.

income statement

Accounts are summarized in financial __________ (statements/entities/transactions), whereas ________ (statements/entities/transactions) are summarized in accounts.

statements; transactions