Chapter 2

The distinction between a current asset and other assets:

is based on when the asset is expected to be converted to cash, or used to benefit the entity.

The principle stating that all expenses incurred while earning revenues should be identified with the revenues when they are earned, and reported for the same time period is the:

matching principle.

The purpose of the income statement is to show the:

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

The principle of consistency means that:

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

The going concern concept refers to a presumption that:

top management of the entity will not change in the coming year.

Which of the following is not a correct expression of the accounting equation? A)Assets - Liabilities = Stockholders' Equity B)Net Assets = Liabilities + Stockholders' Equity C)Assets = Liabilities + Stockholders' Equity D)Net Assets = Stockholders' Equity E)All of the above are correct expressions of the accounting equation.

B) Net Assets = Liabilities + Stockholders' Equity

The stockholders' equity section of a balance sheet contains two major components: A)Common Stock and Additional Paid-in Capital B)Paid-in Capital and Retained Earnings C)Common Stock and Retained Earnings D)Net Income and Dividends E)Additional Paid-in Capital and Net Income

B)Paid-in Capital and Retained Earnings

Which of these is not a limitation of financial statements? A)Qualitative data are not reflected in financial statements. B)Market values of assets are not generally reported. C)Estimates are commonly used and are sometimes inaccurate. D)It may be difficult to compare firms in the same industry because they often use different accounting methods. E)All of the above are limitations of financial statements.

E

The balance sheet is sometimes referred to as the:

Statement of Financial Position.

The time frame associated with a balance sheet is:

a point in time in the past.