ACCT CH 2

On January 31, an entity's balance sheet showed total assets of $2,250 and liabilities of $750. Stockholders' equity at January 31 was: a. $1,500 b. $3,000 c. $1,250 d. $750

a. $1,500 $2,250 - $750 = $1,500

The balance sheet might also be called: a. Statement of Financial Position. b. Statement of Assets. c. Statement of Changes in Financial Position. d. Statement of Equity.

a. Statement of Financial Position.

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.

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

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. a parent corporation and its subsidiaries

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. a point in time in the past.

A concept or principle that relates to transactions is: a. original cost. c. full disclosure. c. consistency. d. materiality.

a. original cost.

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

a. shows how cash changed during the period.

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

a. the amount invested in the entity by the stockholders.

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

a. the entity will continue to operate in the foreseeable future.

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Net income for the year was: a. $40 b. $22 c. $20 d. $30

b. $22 Beginning RE + NI - DIV = Ending RE, or $94 + ? - $12 = $104.Solve for the missing net income = $104 - $94 + $12 = $22

The balance sheet shows the following accounts and amounts: Cash $13,000; Short-term Debt $21,000; Buildings and Equipment $420,000; Inventory, $44,000; Notes Payable $60,000; Accumulated Depreciation $110,000; Common Stock $80,000; Accounts Receivable $38,000; Retained Earnings $237,000; Accounts Payable $17,000. Total assets on the balance sheet are: a. $625,000 b. $405,000 c. $367,000 d. $515,000

b. $405,000

Which of the following is not a limitation of financial statements? a. It is possible that two firms operating in the same industry may follow different accounting methods for the exact same transaction. b. Full disclosure requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled. c. Financial statements are not adjusted to show the impact of inflation. d. Financial statements do not reflect opportunity cost, which is an economic concept relating to income forgone because an opportunity to earn income was not pursued.

b. Full disclosure requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled.

Stockholders' equity refers to which of 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 the above. e. None of the above.

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

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.

b. increases in net assets from selling a product.

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

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

The purpose of the income statement is to show the: a. revenues collected during the period covered by the statement. b. net income or net loss for the period covered by the statement. c. change in the fair value of the assets from the prior income statement. d. market value per share of stock at the date of the statement.

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

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.

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Stockholders' equity at the end of the year totaled: a. $1,744 b. $1,672 c. $1,896 d. $2,876

c. $1,896 $1,672 + $148 + $76 = $1,896

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76. Liabilities at the end of the year totaled: a. $1,672 b. $1,056 c. $980 d. $1,820

c. $980 $1,056 at beginning of year - $76 = $980 at end of year

Which of the following is not a principal form of business organization? a. Partnership. b. Sole proprietorship. c. Limited unregistered business. d. Corporation.

c. Limited unregistered business.

Which of the following is not a limitation of financial statements? a. Financial statements report quantitative economic information; they do not reflect qualitative economic variables. b. The cost principle requires assets to be recorded at their original cost; thus, the balance sheet does not generally reflect the fair values of most assets and liabilities. c. Net income from the income statement is added to the Retained Earnings account balance in the balance sheet. d. Estimates are used in many areas of accounting; when the estimate is made, about the only fact known is that the estimate is probably not equal to the "true" amount.

c. Net income from the income statement is added to the Retained Earnings account balance in the balance sheet.

Which of the following is not a transaction to be recorded in the accounting records of an entity? a. Sale of product to customers. b. Investment of cash by the owners. 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.

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

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 the above.

c. The entity's accounts.

The time frame associated with a balance sheet is: a. a one-year past period of time. b. a single date in the future. c. a point in time in the past. d. a function of the information included in it.

c. a point in time in the past.

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.

c. accurately reflecting the results of operations for a fiscal period.

The principle of full disclosure means that the reporting entity must fully disclose: a. all client data. b. all proprietary information. c. all necessary information to prevent a reasonably astute user of financial statements from being misled. d. all necessary information to prevent all users of financial statements from being misled.

c. all necessary information to prevent a reasonably astute user of financial statements from being misled.

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.

c. net income and dividends for the period.

A concept or principle that relates to transactions is: a. materiality b. full disclosure. c. original cost. d. consistency.

c. original cost.

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

c. the amount invested in the entity by the stockholders.

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.

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

On January 31, an entity's balance sheet showed net assets of $3,075 and liabilities of $675. Stockholders' equity on January 31 was: a. $675 b. $2,400 c. $3,750 d. $3,075

d. $3,075

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Total stockholders' equity at the end of the year was: a. $164 b. $188 c. $212 d. $316

d. $316 pain-in capital + retained earnings = total stockholders' equity $164 +$48 + $104 = $316

At the end of the year, retained earnings totaled $5,100. During the year, net income was $750, and dividends of $360 were declared and paid. Retained earnings at the beginning of the year totaled: a. $6,210 b. $3,990 c. $3,690 d. $4,710

d. $4,710 ? + $750 - $360 = $5,100. $5,100 - $750 + $360 = $4,710

Which of the following is not included in a corporation's annual report? a. The reporting firm's financial statements for the fiscal year. b. The report of the external auditor's examination of the financial statements. c. Notes to the financial statements and key financial data for at least the past five years. d. A detailed Management's Discussion and Analysis section.- All of the above are included in a corporation's annual report.

d. A detailed Management's Discussion and Analysis section.- All of the above are included in a corporation's annual report.

Which of the following accounting methods accomplishes much of the matching of revenues and expenses? a. Match accounting. b. Cash accounting. c. Full disclosure accounting. d. Accrual accounting.

d. Accrual accounting.

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 the answers are correct.

d. All of the answers are correct.

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

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

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.

d. decreases in net assets resulting from usual operating activities.

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.

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.

d. revenues, gains, expenses and losses.

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.

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