CH 2 Smartbook Assignments
Rearrange the following accounts or captions in the order in which they appear on the income statement: 1. Income from operations 2. Income taxes 3. Cost of goods sold 4. Gross profit
3, 4, 1, 2
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 concepts/principles relate to the entire model?
Accounting entity Going concern Accounting equation
Which of the following are considered selling, general, and administrative expenses?
Advertising expense Wages expense Depreciation expense
Which of the following statements are true about the assets of a firm?
Assets are probable future economic benefits to the firm. Assets represent the amount of resources controlled by the firm. The economic benefits associated with assets must be obtained or controlled by the firm. Assets result from past transactions or events of the firm.
Retained earnings represents the___ net income of the entity that has been retained for use in the business.
Blank 1: cumulative
When a subsidiary is not wholly owned, the other stockholders of the subsidiary are referred to as stockholders, and their ownership rights are referred to as the interest.
Blank 1: minority Blank 2: noncontrolling
A partnership is essentially a group of who have banded together.
Blank 1: proprietors
Shareholders of a corporation receive ___of stock as evidence of their ownership interest in the corporation.
Blank 1: shares
Accounts are summarized in financial (statements/entities/transactions), whereas (statements/entities/transactions) are summarized in accounts.
Blank 1: statements Blank 2: transactions
he statement of changes in owners' equity, the statement of changes in retained earnings, and the statement of changes in capital stock are alternative names for the more commonly reported statement of changes in ____ _____
Blank 1: stockholders' Blank 2: equity
Which of the following statements are true regarding the statement of cash flows?
Cash paid for the purchase of buildings or equipment 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.
Which of the following statements is true regarding the statement of cash flows?
Cash received from the sale of buildings or equipment is an investing activity, and the activity is a source of cash. The increase in accounts payable for the year is a source of cash and is shown as an operating activity. Depreciation expense is added back to net income in the operating activities section. Cash received from the sale of long-term debt is a financing activity, and the activity is a source of cash.
Which of the following types of accounts are reported on the income statement?
Gains Revenues Losses Expenses
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.
Which statement is true regarding the income statement?
It is a link between the balance sheets at the beginning and end of the year.
hich statements are true regarding the par value per share of common stock?
It is a relic from the past, that for all practical purposes, has lost its significance. It is an arbitrary value assigned when the corporation is organized. It is often a nominal amount, such as $1 per share.
Which statements are true regarding the par value per share of common stock?
It is an arbitrary value assigned when the corporation is organized. It is a relic from the past, that for all practical purposes, has lost its significance. It is often a nominal amount, such as $1 per share.
Which statements are true regarding the cost of goods sold?
It is frequently called cost of sales or cost of products sold. It represents the total cost of merchandise sold to customers. It is normally shown as a separate expense because of its significance.
Which of the following statements are true regarding income from operations?
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.
Which of the following statements are true regarding retained earnings?
It is increased each year by the entity's net income. 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 the cumulative net income of the entity that has been retained for use in the business.
Which of the following is not a disadvantage of proprietorship?
It is not easy to form.
Which statements are true regarding a firm's fiscal year?
It is often the same as the calendar year. It can be any 12-month period. It is the annual period used for reporting purposes.
Which statements are true regarding stockholders' equity?
It is sometimes referred to as net worth. It is equal to assets minus liabilities. It is sometimes referred to as net assets.
Which statement is true regarding a firm's fiscal year?
It is the annual period used for reporting to owners, the government, and others.
Which of the following statements are true regarding stockholders' equity?
It is the equity in the assets that remain after subtracting the liabilities. It is sometimes referred to as net worth. It is sometimes referred to as net assets. it is sometimes referred to as owners' equity.
Which statements are true regarding gross profit?
It represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income. It is sometimes referred to as gross margin.
Which of the following is not an advantage of proprietorship?
Its owner has limited personal liability.
Which of the following is not one of the three principal forms of business organization?
LLC
Which of the following statements are true about liabilities of a firm?
Liabilities are claims against the firm by its creditors. Liabilities are present obligations to transfer assets or provide services to other organizations. 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 is true regarding the balance sheet components?
Liabilities are the obligations of the organization.
Which of the following are included in liabilities?
Long-term debt Accounts payable Other accrued liabilities
Which of the following concepts/principles relate to financial statements?
Materiality Full disclosure Consistency Conservatism
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.
Which of the following statements are not true about net sales?
Net sales represent the difference between gross profit and cost of goods sold. Net sales include only credit sales, not cash sales
Which of the following are the main activity categories in the statement of cash flows?
Operating Investing Financing
What are the three principal forms of business organization? Multiple select question.
Partnership Proprietorship Corporation
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 are other names for the income statement?
Statement of earnings Statement of operations Profit and loss statement
Which of the following statements is true regarding what each financial statement of an entity reports?
The balance sheet reports an entity's financial position at the end of a period. The income statement reports an entity's earnings for a period. The statement of cash flows reports the entity's cash flows during a period.
Which of the following are limitations of financial statements?
The fact that financial statements do not reflect opportunity costs The fact that financial statements are not adjusted for the impact of inflation The use of estimates in the accounting process The use of the cost principle
Which of the following statements about partnerships is true?
The income earned from partnerships is taxed at the partner level.
Which of the following statements are true regarding the statement of cash flows?
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. If a current liability account increases for the year, this will show up as a source of cash in the operating activities section. Payment of cash dividends on common stock is a financing activity, and the activity is a use of cash.
Which of the following items are normally included as key components of a corporation's annual report?
The report of the external auditor's examination of the financial statements A five-year (or longer) summary of key financial data The notes to the financial statements
Which of the following are alternative names for the statement of changes in stockholders' equity?
The statement of changes in capital stock The statement of changes in retained earnings The statement of changes in owners' equity
Which of the following are reported in the statement of changes in stockholders' equity?
Total stockholders' equity at the end of the year. Year-end balance of retained earnings Common stock issued during the year Dividends for the year Net income for the year
Merchandise inventory is:
a current asset account
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 _____.
a current liability
The period of time selected for reporting financial statements is known as the ____period.
accounting
The two main components of paid-in capital are common stock and:
additional paid-in capital
Transactions: (Check all that apply).
are economic interchanges between entities are summarized in accounts, and accounts are further summarized in financial statements
Current liabilities:
are those liabilities that are likely to be paid with cash within one year of the balance sheet date
The balance sheet:
as of the end of one period is the balance sheet at the beginning of the next period
Stockholders' equity is the ownership right of the stockholders in the ___that remain after subtracting the ___of the corporation.
assets, liabilities
Which of the following is a current asset?
cash
Estimates are frequently made in accounting for each of the following items, except:
cash receipts from customers
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 ____principle in accounting relates to making judgments and estimates that result in lower profits and asset valuation estimates rather than higher profits and asset valuation estimates.
conservatism
Limiting a firm's ability to switch back and forth between alternative generally accepted accounting methods is driven by which of the following concepts/principles?
consistency
The four concepts/principles that relate to the financial statements are:
consistency, full disclosure, materiality, and conservatism
When a parent-subsidiary relationship exists, the financial statements issued by the parent company also reflect the results of the subsidiary company or companies and are referred to as ____financial statements.
consolidated
most assets are not recorded at their current market values because of the limitations imposed by the___ principle.
cost
Stockholders' equity is:
decreased by dividends paid during the year
Selling, general, and administrative expenses include:
depreciation expense
True or false: Financial statements report qualitative economic variables.
false
The concept that refers to the presumption that the entity will continue to operate in the future is known as the:
going concern concept
The statement of operations, statement of earnings, and the profit and loss statement are alternative names for the ___statement.
income
An entity's earnings for a reporting period are reported on the:
income statement
Revenues, expenses, gains, and losses are reported on the . Listen to the complete question
income statement
The link between last year's balance sheet and this year's balance sheet is this year's:
income statement
stockholder's equity is:
increased by net income for the year
Net worth:
is a misleading term because assets and liabilities are not generally "worth" the amounts reported on the balance sheet
Income from operations:
is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred
The balance sheet:
is like a snapshot of the organization's financial position, frozen at a specific point in time.
The three activity categories in the statement of cash flows are:
operating, investing, and financing
Most assets are reported on the balance sheet based on their:
original (historical) cost
The two main components reported on the statement of changes in stockholders' equity are:
paid-in capital and retained earnings
Assets are ____future economic benefits obtained or controlled by a particular entity as a result of_____ transactions or events.
probable, past
Accrual accounting results in:
recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred
net sales:
represent the amount of sales of merchandise to customers, less any sales returns
Cost of goods sold:
represents the total cost of merchandise sold to customers
Gross profit:
results from subtracting cost of goods sold from net sales
The owners of a corporation are called .
shareholders
No-par-value stock can sometimes be assigned a(n) ___value per share.
stated
Alternative names for the statement of changes in stockholders' equity include all of the following except the:
statement of cash flows
Alternative names used to describe the income statement include all of the following except the:
statement of financial position
Current assets include cash and other assets:
that are likely to be converted into cash or used to benefit the entity within one year
In the horizontal model representation of the financial statements, _____.
the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings
One of the primary disadvantages of the corporation as a form of business is that:
the cost of forming a corporation is usually higher than that of starting a proprietorship or partnership
For a parent-subsidiary relationship to exist, _____.
the parent must normally own more than 50 percent of the stock of another corporation
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
A firm prepares comparative financial statement so that _____.
the users of the data can easily spot changes in the firm's financial position and in its results of operations
Revenue is recognized at the time of sale, which is when:
title passes to the buyer or when the services are performed
If total assets are equal to $10,000 and total stockholders' equity is equal to $3,000, then:
total liabilities are equal to $7,000
If total assets are equal to $15,000 and total liabilities are equal to $9,000, then:
total stockholders' equity is equal to $6,000.
True or false: The value of a management team or of the morale of the workforce is not included as a balance sheet asset because it cannot be objectively measured.
true
In the United States, the dollar is the ___of_____ for all transactions.
unit of measurement
Which concept/principle supports the notion that for companies reporting their financial statements in United States dollars, no adjustments are made for the effects of inflation?
unit of measurment
