Chapter 2

Which of the following is a current asset?

Cash

Which of the following are considered selling, general, and administrative expenses?

Depreciation expense Advertising expense Wages expense

Which of the following statements is true regarding the statement of cash flows?

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

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.

Revenues, expenses, gains, and losses are reported on the

Income Statements

Which of the following statements is not correct regarding retained earnings?

Retained earnings is increased each year by the entity's net income and dividends.

Which of the following statements are true about the assets of a firm?

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

Current liabilities:

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

Net worth:

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

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

probable, past

Net sales:

represent the amount of sales of merchandise to customers, less any sales returns

Gross profit:

results from subtracting cost of goods sold from net sales

Current assets include cash and other assets:

that are likely to be converted into cash or used to benefit the entity within one year

Which statement that is true about a balance sheet?

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

Which of the following are included in assets? Multiple select question.

Accounts receivable Merchandise inventory Cash Equipment

Which of the following statements is not true regarding accounts receivable?

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

Which of the following calculations are made on the income statement?

Income from operations minus interest expense equals income before taxes. 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.

Which of the following statements are true regarding income 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 retained earnings?

It is referred to as an accumulated deficit if cumulative losses and dividends exceed cumulative net income. It is reduced by any dividends paid to stockholders. It is increased each year by the entity's net income. It is the cumulative net income of the entity that has been retained for use in the business.

Which statements are true regarding gross profit?

It is sometimes referred to as gross margin. It 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 regarding stockholders' equity?

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

Which of the following statements are true about liabilities of a firm?

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.

Which of the following statements are true about liabilities of a firm?

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

Which of the following are included in liabilities?

Long-term debt Other accrued liabilities Accounts payable

Which of the following statements are true regarding net assets?

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