1. Which of the following is not classified among the financing activities in a statement of cash flows?

a. Long-term borrowing.

b. Payment of dividends to stockholders.

c. Short-term borrowing.

d. Payment of interest to creditors.

2. In a multiple-step income statement, interest expense usually is not classified as an operating expense because interest charges:

a do not contribute to the production of revenue.

b Relate directly to the cost of goods sold.

c Stem from the manner in which assets are financed, not the manner in which they are used in business operations.

d The statement is incorrect. Interest usually is classified as an operating expense.

3. The cost principle is the basis for preparing financial statements because it is

a. A conservative value.

b. Objectively measured.

c. An international standard.

d. The most accurate measure of purchasing power.