12. The concept of materiality:

a Treats as material only those items that are greater than 2% or 3% of net income.

b Justifies ignoring the matching principle in certain circumstances.

c Affects only items reported in the income statement.

d Results in financial statements that are less useful to decision makers because many details have been omitted.

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

c Relate directly to the cost of goods sold.

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

15. Telecote Pro Shop uses a periodic inventory system. The beginning inventory was $20,000, purchases amounted to $110,000, sales totaled $215,000, and the year-end inventory was $25,000. The cost of goods sold must have been:

a $100,000.

b $105,000

c $110,000.

d some other amount.

16. AllNight Stores purchased canned goods at an invoice price of $2,000 and terms of 2/10, n/30. Half of the goods had been mislabeled and were returned immediately to the supplier. If AllNight pays the invoice within the discount period, the amount paid should be:

a $960.

b $980.

c 1,960.

d 2,000.

17. An important distinction between the direct method and the indirect method of preparing a statement of cash flows is that:

a The format of the section computing net cash flow from operating activities is different under the two methods.

b The direct method reconciles accrual-based net income with net cash flow from operations; the indirect method shows the specific cash inflows and outflows constituting the operating activities.

c The direct method results in a lower (more conservative) figure for net cash flow from operating activities than does the indirect method.

d Only those statements of cash flows prepared using the direct method are in accordance with generally accepted accounting principles as set forth by the FASB.

18. 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 Payment of interest to creditors.

d Short-term borrowing.