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Study Guide 7
Perfect Score
Name Identifying Accounting Concepts and Practices Analyzing an Income Statement Analyzing Income Statement Procedures Total
20 15 5 40
Your Score
Pts. Pts. Pts. Pts.
Part One—Identifying Accounting Concepts and Practices Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false.
Answers 1. The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business’s financial condition. (p. 180)
1.
T
2. Stakeholders are any persons or groups who will be affected by an action. (p. 181)
2.
3. An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss. (p. 182)
3.
T T
4. The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period. (p. 182)
4.
T
5. Information needed to prepare an income statement comes from the trial balance columns and the income statement columns of a work sheet. (p. 182)
5.
F
6. The income statement for a service business has five sections: heading, revenue, expenses, net income or loss, and capital. (p. 182)
6.
F
7. The income statement’s account balances are obtained from the work sheet’s Income Statement columns. (p. 182)
7.
T
8. The net income on an income statement is verified by checking the balance sheet. (p. 183)
8.
9. Single lines ruled across an amount column of an income statement indicate that amounts are to be added. (p. 183)
9.
F T
10. A component percentage is the percentage relationship between one financial statement item and the total that includes that item. (p. 184)
10.
T
11. Component percentages on an income statement are calculated by dividing sales and total expenses by net income. (p. 184)
11.
F
12. All companies should have a total expenses component percentage that is not more than 80.0%. (p. 184)
12.
F
13. When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue. (p. 185)
13.
F
14. An amount written in parentheses on a financial statement indicates an estimate. (p. 185)
14.
15. A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner’s equity. (p. 187)
15.
F T
16. A balance sheet reports information about the elements of the accounting equation. (p. 188)
16.
17. The owner’s capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance, less net income. (p. 189)
17.
T F
18. The position of the total asset line on the balance sheet is determined after the equities section is prepared. (p. 189)
18.
T
19. Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct. (p. 189)
19.
T
20. The owner’s equity section of a balance sheet may report different kinds of details about owner’s equity, depending on the need of the business. (p. 190)
20.
T
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Part Two—Analyzing an Income Statement Directions: The parts of the income statement below are identified with capital letters. Decide the location of each of the following items. Print the letter identifying your choice in the Answers column.
RugCare A Income Statement B For the YearC Ended 1993 % OF SALES
D E
F
N
K
O
M
P
G H
J L (pp. 182–185) 1. Date of the income statement.
I
Answers 1. C
2. The amount of net income or net loss.
2. M
3. Business name.
3.
A
4. Expense account balances.
4.
I
5. Expense account titles.
5.
H
6. Heading of expense section.
6.
G
7. Heading of revenue section.
7.
D
8. Net income or net loss component percentage.
8.
P
9. Revenue account title.
9.
E
10. Sales component percentage.
10.
N
11. Statement name.
11.
B
12. Total amount of revenue.
12.
F
13. Total expenses component percentage.
13. O
14. Words Net Income or Net Loss.
14.
L
15. Words Total Expenses.
15.
J
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Name
Date
Class
Part Three—Analyzing Income Statement Procedures Directions: For each of the following items, select the choice that best completes the statement. Print the letter identifying your choice in the Answers column.
Answers 1. A
1. The date on a monthly income statement prepared on July 31 is written as (A) For Month Ended July 31, 20–– (B) July 31, 20–– (C) 20––, July 31 (D) none of the above. (p. 182) 2. Information needed to prepare an income statement’s revenue section is obtained from a work sheet’s Account Title column and (A) Income Statement Debit column (B) Income Statement Credit column (C) Balance Sheet Debit column (D) Balance Sheet Credit column. (p. 183)
2.
B
3. Information needed to prepare an income statement’s expense section is obtained from a work sheet’s Account Title column and (A) Income Statement Debit column (B) Income Statement Credit column (C) Balance Sheet Debit column (D) Balance Sheet Credit column. (p. 183)
3.
A
4. The amount of net income calculated on an income statement is correct if (A) it is the same as net income shown on the work sheet (B) debits equal credits (C) it is the same as the balance sheet (D) none of the above. (p. 183)
4.
A
5. The formula for calculating the net income component percentage is (A) net income divided by total sales equals net income component percentage (B) total sales divided by total expenses equals net income component percentage (C) total sales minus total expenses divided by net income equals total net income percentage (D) none of the above. (p. 184)
5.
A
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Description
Study Skills Effective Listening Every day we hear thousands of words, and we quickly forget most of them. There is little reason to remember most of what we hear. However, we forget many things that we should remember. In order to remember the important things, we must learn to listen effectively. Become Involved To retain the important points that we hear, we must become actively involved in the subject. We should try to hold a “mental conversation” with the speaker. We must keep our attention on the subject and try to anticipate what we think the speaker will say next. We should ask ourselves questions that the speaker should answer in the next few sentences. Play Detective As we listen, we can “play detective.” We can examine every piece of evidence that the speaker presents. We can look for problems in logic or conclusions that are not supported by the evidence presented. Avoid Distractions As we are listening, we should not allow ourselves to be distracted. Something like the color of the speaker’s clothing can distract us if we are not alert. The speaker’s accent may keep us from concentrating on the ideas if we allow it to do so. If we realize that we are not paying attention or daydreaming, we must call our attention back to the subject immediately. Disagreements We will often disagree with what a speaker is saying. However, we should not stop listening. We can tell ourselves, “That’s not what I think” and immediately return our attention to the subject. We must not allow difference of opinion to keep us from getting the point of a talk. Conclusion A passive listener will not gain everything from a talk. A good listener participates actively. Effective listening requires self-control and concentration. It is a skill that each of us should work hard to attain. With practice, we can all be good listeners.
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Date
Class
WORK TOGETHER, p. 186
Preparing an income statement 5
6
INCOME STATEMENT
7
8 BALANCE SHEET
ACCOUNT TITLE DEBIT
CREDIT
DEBIT
CREDIT
5 5 1 1 00
11
Sales
12
Advertising Expense
8 2 1 00
12
13
Insurance Expense
3 0 0 00
13
14
Miscellaneous Expense
3 4 7 00
14
15
Supplies Expense
7 1 3 00
15
17
7 7 3 0 00
16
3 3 3 0 00
3 3 3 0 00
17
5 5 1 1 00
5 5 1 1 00 11 0 6 0 00 11 0 6 0 00
18
2 1 8 1 00
16
Net Income
18
11
5 5 1 1 00 11 0 6 0 00
19
19
20
20
21
21
22
22
Darlene’s Delivery Service Income Statement For Month Ended July 31, 20 – – % OF SALES
Revenue: 5 5 1 1 00 100.0
Sales Expenses: Advertising Expense
8 2 1 00
Insurance Expense
3 0 0 00
Miscellaneous Expense
3 4 7 00
Supplies Expense
7 1 3 00
Total Expenses Net Income
Chapter 7
2 1 8 1 00
39.6
3 3 3 0 00
60.4
Financial Statements for a Proprietorship • 145
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ON YOUR OWN, p. 186
Preparing an income statement 5
6
INCOME STATEMENT
7
8 BALANCE SHEET
ACCOUNT TITLE DEBIT
12
Sales
13
Insurance Expense
14
Miscellaneous Expense
15
Supplies Expense
16
Utilities Expense Net Income
CREDIT
12
2 5 0 00
13
9 8 00
14
3 7 7 00
15
1 2 2 0 00
16
3 8 4 7 00
8 4 0 6 00
1 9 0 2 00 3 8 4 7 00
19
DEBIT
3 8 4 7 00
1 9 4 5 00
17 18
CREDIT
3 8 4 7 00
8 4 0 6 00
6 5 0 4 00
17
1 9 0 2 00
18
8 4 0 6 00
19
20
20
21
21
22
22
23
23
Cuts by Kelley Income Statement For Month Ended February 28, 20 – – % OF SALES
Revenue: 3 8 4 7 00 100.0
Sales Expenses: Insurance Expense Miscellaneous Expense
2 5 0 00 9 8 00
Supplies Expense
3 7 7 00
Utilities Expense
1 2 2 0 00
Total Expenses Net Income
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1 9 4 5 00
50.6
1 9 0 2 00
49.4
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Date
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WORK TOGETHER, p. 192
Preparing a balance sheet 7
8 BALANCE SHEET
ACCOUNT TITLE DEBIT
CREDIT
9 5 0 0 00
1
1 0 0 00
2
Accts. Rec.—Betsy Russell
1 6 5 0 00
3
4
Accts. Rec.—Charles Healy
1 4 0 3 00
4
5
Supplies
2 2 0 00
5
6
Prepaid Insurance
6 4 0 00
6
7
Accts. Pay.—Lindgren Supply
5 4 8 00
7
8
Accts. Pay.—Taxes By Thomas
1 1 1 00
8
9
Ken Cherniak, Capital
11 8 1 0 00
9
1
Cash
2
Petty Cash
3
10
Ken Cherniak, Drawing
11
Income Summary
8 5 5 00
11
18 19
10
14 3 6 8 00 12 4 6 9 00
18
1 8 9 9 00
19
14 3 6 8 00 14 3 6 8 00
20
Net Income
20 21
21
22
22
Ken’s Carpet Cleaning Balance Sheet April 30, 20 – – Assets Cash Petty Cash
Liabilities 9 5 0 0 00 1 0 0 00
Accts. Rec.—Betsy Russell
1 6 5 0 00
Accts. Rec.—Charles Healy
1 4 0 3 00
Supplies
2 2 0 00
Prepaid Insurance
6 4 0 00
Total Assets
13 5 1 3 00
Accts. Pay.—Lindgren Supply
5 4 8 00
Accts. Pay.—Taxes By Thomas
1 1 1 00
Total Liabilities
6 5 9 00
Owner’s Equity Ken Cherniak, Capital
12 8 5 4 00
Total Liab. and Owner’s Equity
13 5 1 3 00
Chapter 7
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ON YOUR OWN, p. 192
Preparing a balance sheet 7
8 BALANCE SHEET
ACCOUNT TITLE DEBIT 1
Cash
2
CREDIT
5 3 0 0 00
1
Petty Cash
2 5 0 00
2
3
Accts. Rec.—K. Hartwood
5 5 2 00
3
4
Accts. Rec.—Ruth Kabila
1 8 7 00
4
5
Supplies
3 4 3 00
5
6
Prepaid Insurance
9 0 0 00
6
7
Accts. Pay.—Sam’s Supply
1 6 5 00
7
8
Accts. Pay.—Ella’s on Eaton
1 6 0 00
8
9
Anne Olson, Capital
6 2 1 0 00
9
10
Anne Olson, Drawing
1 2 0 0 00
10 11
8 7 3 2 00
16 17
Net Income 8 7 3 2 00
18
6 5 3 5 00
16
2 1 9 7 00
17
8 7 3 2 00
18
19
19
20
20
21
21
Anne’s Alterations Balance Sheet October 31, 20 – – Assets Cash
Liabilities 5 3 0 0 00
Accts. Pay.—Sam’s Supply
1 6 5 00
Petty Cash
2 5 0 00
Accts. Pay.—Ella’s on Eaton
1 6 0 00
Accts. Rec.—K. Hartwood
5 5 2 00
Total Liabilities
3 2 5 00
Accts. Rec.—Ruth Kabila
1 8 7 00
Supplies
3 4 3 00
Prepaid Insurance
9 0 0 00
Total Assets
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7 5 3 2 00
Owner’s Equity Anne Olson, Capital
7 2 0 7 00
Total Liab. and Owner’s Equity
7 5 3 2 00
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APPLICATION PROBLEM, p. 194
Preparing an income statement
Len’s Laundry Income Statement For Month Ended August 31, 20 – – % OF SALES
Revenue: 6 2 3 3 00 100.0
Sales Expenses: Advertising Expense
8 0 0 00
Insurance Expense
2 0 0 00
Miscellaneous Expense
3 1 5 00
Supplies Expense
4 5 0 00
Utilities Expense
1 4 9 5 00
Total Expenses Net Income
Chapter 7
3 2 6 0 00
52.3
2 9 7 3 00
47.7
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APPLICATION PROBLEM, pp. 194, 195
Preparing a balance sheet
Len’s Laundry Balance Sheet August 31, 20 – – Assets
Liabilities 7 6 0 7 00
Accts. Pay.—Tri-County Supplies
3 8 1 00
Accts. Rec.—Natasha Goodlad
7 0 0 00
Accts. Pay.—West End Supply Co.
5 5 5 00
Accts. Rec.—R. Henry
4 9 8 00
Total Liabilities
9 3 6 00
Supplies
4 3 1 00
Prepaid Insurance
2 0 0 00
Cash
Total Assets
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9 4 3 6 00
Owner’s Equity Leonard Long, Capital
8 5 0 0 00
Total Liab. and Owner’s Equity
9 4 3 6 00
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Date
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Class
MASTERY PROBLEM, p. 195
Preparing financial statements with a net loss 1., 2.
Rolstad Repair Service Income Statement For Month Ended September 30, 20 – – % OF SALES
Revenue: Sales
3 2 6 9 00 100.0
Expenses: Advertising Expense
4 5 0 00
Insurance Expense
1 5 7 00
Miscellaneous Expense
8 5 00
Supplies Expense
1 4 0 0 00
Utilities Expense
1 6 4 1 00
Total Expenses
3 7 3 3 00 114.2
Net Loss
(4 6 4 00) (14.2)
3.
Rolstad Repair Service Balance Sheet September 30, 20 – – Assets Cash
Liabilities 6 9 5 8 00
Petty Cash
1 5 0 00
Accts. Rec.—M. Hollerud
1 9 7 00
Supplies
7 8 0 00
Prepaid Insurance
8 0 0 00
Total Assets
8 8 8 5 00
Accts. Pay.—Tampa Supply
6 1 2 00
Owner’s Equity Ron Rolstad, Capital
8 2 7 3 00
Total Liab. and Owner’s Equity
8 8 8 5 00
Chapter 7
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CHALLENGE PROBLEM, p. 196
Preparing financial statements with two sources of revenue and a net loss 1., 2.
LawnMow Income Statement For Month Ended October 31, 20 – – % OF SALES
Revenue: Sales—Lawn Care
4 9 0 0 00
Sales—Shrub Care
2 5 0 0 00
Total Sales
7 4 0 0 00 100.0
Expenses: Advertising Expense
3 9 0 00
Insurance Expense
4 0 0 00
Miscellaneous Expense
5 5 0 00
Rent Expense
3 3 0 0 00
Supplies Expense
3 2 0 0 00
Total Expenses
7 8 4 0 00 105.9
Net Loss
(4 4 0 00)
(5.9)
3.
LawnMow Balance Sheet October 31, 20 – – Assets Cash Accts. Rec.—Sandra Rohe Supplies Prepaid Insurance
Liabilities 1 8 9 8 00
Accts. Pay.—Corner Garage
5 8 00
9 5 00
Accts. Pay.—Broadway Gas
1 1 0 00
Accts. Pay.—Esko Repair
2 1 5 00
Total Liabilities
3 8 3 00
6 5 0 00 1 2 0 0 00
Owner’s Equity Total Assets
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3 8 4 3 00
Ryo Morrison, Capital
3 4 6 0 00
Total Liab. and Owner’s Equity
3 8 4 3 00
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