Acct 2, Shasta, ch 2

Retained earnings appears on:

The balance sheet.

The concept of adequate disclosure means that:

The company must inform users of any significant facts necessary for proper interpretation of the financial statements, including events occurring after the financial statement date.

Each year, the accountant for Southern Real Estate Company adjusts the recorded value of each asset to its market value. Using these market value figures on the balance sheet violates:

The cost principle.

If total assets equal $272,000 and total liabilities equal $203,500, the total owners' equity must equal:

$272,000 - $203,500 = $68,500

If total assets equal $340,000 and total owners' equity equal $117,500, then total liabilities must equal:

$340,000 - $117,500 = $222,500

Which of the following best defines an asset?

An economic resource owned by a business and expected to benefit future operations.

The principle of adequate disclosure means that a company should disclose:

Any financial facts that a reasonably informed person would consider necessary for the proper interpretation of the financial statements.

The way in which financial statements relate is known as:

Articulation.

The valuation of assets in the balance sheet is based primarily upon:

Cost, because cost is usually factual and verifiable.

Decreases in owners' equity are caused by:

Distributions of assets to the owners and unprofitable operations.

Owners' equity in a business increases as a result of which of the following?

Earnings from profitable operation of the business.

Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount.

False

The collection of an account receivable will cause total assets to decrease.

False

The payment of a liability causes an increase in owners' equity.

False

Total assets plus total liabilities must equal total owners' equity.

False

The accounting principle that assumes that a company will operate in the foreseeable future is:

Going concern.

The change in owners' equity due to only revenue and expense transactions is explained by the:

Income statement.

Which of the following assets would most likely be listed last on a statement of financial position?

Land

A strong statement of financial position shows:

Large amounts of liquid assets relative to the liabilities due in the near future.

A balance sheet is designed to show:

The assets, liabilities, and owners' equity of a business as of a particular date.

Which of the following activities is not a category into which cash flows are classified?

Marketing activities.

A strong statement of cash flows indicates that significant cash is being generated by:

Operating activities.

An expense is best defined as:

Past, present, or future payments of cash required to generate revenues.

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:

Retained earnings.

Which one of the following is not considered as one of the three primary financial statements?

Statement of budgeting activities.

Which of the following best describes liquidity?

The ability to pay the debts of the company as they become due.

Capital stock represents:

The amount invested in the business by stockholders when shares of stock were initially issued by a corporation.

Retained earnings is:

The owners' equity that has accumulated as a result of profitable operations.

The amount of owners' equity in a business is not affected by:

The percentage of total assets held in cash.

Which of the following is not a generally accepted accounting principle relating to the valuation of assets?

The safety principle - assets are valued at no more than the value for which they are insured.

A transaction that causes an increase in an asset may also cause a decrease in another asset, an increase in a liability, or an increase in owners' equity.

True

Articulation between the financial statements means that they relate closely to each other on the basis of the same underlying transaction information.

True

The accounting equation may be stated as "assets minus liabilities equals owners' equity."

True

The going concern principle assumes that the business will continue indefinitely.

True

The owner of a sole proprietorship is personally liable for the debts of the business, whereas the stockholders of a corporation are not personally liable for the debts of the business.

True

The practice of showing assets on the balance sheet at their cost, rather than at their current market value is explained, in part, by the fact that cost is supported by objective evidence that can be verified by independent experts.

True

Total assets must always equal total liabilities plus total owners' equity.

True