Q2-1. The balance sheet consists of assets, liabilities, and equity.

Define each category and provide two

examples of accounts reported within each category.

Q2-2. Two important concepts that guide income statement reporting are the revenue recognition
principle and the matching principle. Define and explain each of these two guiding principles.

Q2-3. GAAP is based on the concept of accrual accounting. Define and describe accrual accounting.

Q2-4. What is the statement of stockholders’ equity? What information is conveyed in that statement?

Q2-5. What are the two essential characteristics of an asset?

Q2-6. What does the concept of liquidity refer to? Explain.

Q2-7. What does the term current denote when referring to assets?

Q2-8. Assets are recorded at historical costs even though current market values might, arguably, be
more

relevant to financial statement readers. Describe the reasoning behind historical cost usage.

Q2-9. Identify three intangible assets that are likely to be excluded from the balance sheet because they

cannot be reliably measured.

Q2-10. How does the quick ratio differ from the current ratio?

Q2-11. What three conditions must be satisfied to require reporting of a liability on the balance sheet?

Q2-12. Define net working capital. Explain how increasing the amount of trade credit can reduce the net

working capital for a company.

Q2-13. On December 31, 2013, Miller Company had $700,000 in total assets and owed $220,000 to
creditors. If this corporation’s common stock totaled $300,000, what amount of retained earnings is
reported on its December 31, 2013, balance sheet?