Chapter 2

The two main components of paid-in capital are:

common stock and additional paid-in capital

Financial statements that show a column for the current year and the prior year are known as____ financial statements.

comparative

The four concepts/principles that relate to the financial statements are:

consistency, full disclosure, materiality, and conservatism

A corporation's annual report contains the reporting firm's financial statements and each of the following key components, except:

the reporting firm's operating budget for the next fiscal year

Which of the following statements are true regarding the statement of cash flows? (Check all that apply.) Cash received from the sale of common stock is a financing activity, and the activity is a source of cash. The increase in accounts receivable for the year is a source of cash and is shown as a financing activity. Payment of cash dividends on common stock is an investing activity, and the activity is a use of cash. Net income from the income statement is the starting point for determining cash provided or used by operating activities.

Cash received from the sale of common stock is a financing activity, and the activity is a source of cash. Net income from the income statement is the starting point for determining cash provided or used by operating activities. Cash paid for the purchase of buildings or equipment is an investing activity, and the activity is a use of cash.

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 the difference between the net sales and the cost of goods sold 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

Assets are ____ future economic benefits obtained or controlled by a particular entity as a result of _____ transactions or events.

probable, past

The investments by and distributions to owners during a reporting period are reported on the: statement of stockholders' equity statement of cash flows income statement balance

statement of stockholders' equity

In the horizontal model representation of the financial statements, Blank______.

the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings

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

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

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

Gross profit, income from operations, and income before taxes are all subtotals on the income statement.

Which of the following statements are true regarding the statement of cash flows? (Check all that apply.) If a current liability account increases for the year, this will show up as a source of cash in the operating activities section. If a current asset account increases for the year, this will show up as a source of cash in the operating activities section. The net increase in cash for the year is equal to the sum of the net cash provided or used by operating, investing, and financing activities. The decrease in accounts payable for the year is a source of cash and is shown as an operating activity. Payment of cash dividends on common stock is a financing activity, and the activity is a use of cash.

If a current liability account increases for the year, this will show up as a source of cash in the operating activities section. The net increase in cash for the year is equal to the sum of the net cash provided or used by operating, investing, and financing activities. Payment of cash dividends on common stock is a financing activity, and the activity is a use of cash.

Which of the following statements are true regarding income from operations? It is frequently referred to as net margin. It appears on the income statement after income before taxes. It is frequently called operating income. 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. It is frequently called earnings from operations.

It is frequently called operating income. 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. It is frequently called earnings from operations.

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

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

Which of the following statements are true about liabilities of a firm? Liabilities include accounts receivable, merchandise inventory, and accounts payable. Liabilities are claims against the firm by its creditors. Liabilities are reported in the income statement. Liabilities are amounts owed to other entities. Liabilities are present obligations to transfer assets or provide services to other organizations.

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

Which of the following statements are true regarding the statement of cash flows? (Check all that apply.)

Net income from the income statement is the starting point for determining cash provided or used by operating activities. Cash received from the sale of common stock is a financing activity, and the activity is a source of cash. Cash paid for the purchase of buildings or equipment is an investing activity, and the activity is a use of cash.