Accounting Chapter 1 3 81 The International Accounting Standards Board Has

Chapter 01 – Financial Statements and Business Decisions

81. The International Accounting Standards Board has worked to develop global accounting

standards known as

82. An examination of the financial statements of a business to ensure that they conform to

generally accepted accounting principles is called

Chapter 01 – Financial Statements and Business Decisions

83. Which of the following best describes the purpose of an audit?

84. Why does a company hire independent auditors?

Chapter 01 – Financial Statements and Business Decisions

85. Why is the CPA’s role in performing audits important to our economic system?

86. Which of the following is not one of the three steps taken by a corporation to assure the

accuracy of its records?

Chapter 01 – Financial Statements and Business Decisions

87. Which of the following groups has primary responsibility for the information contained in

the financial statements?

88. Which private sector body was given the primary responsibility to determine detailed

auditing standards?

Chapter 01 – Financial Statements and Business Decisions

89. Which group maintains the professional code of ethics to which CPAs must adhere?

90. Which of the following is a disadvantage of a corporation when compared to a

partnership?

Chapter 01 – Financial Statements and Business Decisions

91. Which of the following statements is true about a sole proprietorship?

92. For a business organized as a general partnership, which statement is true?

Chapter 01 – Financial Statements and Business Decisions

93. Which of the following would not be reported on a statement of retained earnings?

94. Which of the following statements is correct?

Chapter 01 – Financial Statements and Business Decisions

95. Which of the following is not provided within the notes that accompany the financial

statements?

96. Which of the following transactions affects both retained earnings and net income?

Chapter 01 – Financial Statements and Business Decisions

97. Which of the following transactions affects both the income statement and the statement

of cash flows?

98. Which of the following would not be found within the investing section of the statement

of cash flows?

Chapter 01 – Financial Statements and Business Decisions

99. Which of the following is primarily responsible for the information provided in the

financial statements?

100. Which of the following doesn’t represent a professional accounting certification?

Chapter 01 – Financial Statements and Business Decisions

101. Determine the missing amounts for each independent case below. Assume the amounts

given are at the end of the company’s first year of operation.

Chapter 01 – Financial Statements and Business Decisions

1-52

102. Gail’s Greenhouse, Inc., a small retail store which sells house plants, started business on

January 1, 2010. At the end of January, 2010, the following information was available:

Requirements:

A. Using the above information, prepare the income statement for Gail’s Greenhouse for the

month ended January 31, 2010.

B. What is the amount of cash flows provided by operating activities to be presented on the

statement of cash flows?

Chapter 01 – Financial Statements and Business Decisions

103. Indicate on which financial statement you would expect to find each of the following. If

an item can be found on more than one statement, list each statement.

Chapter 01 – Financial Statements and Business Decisions

104. For each of the following items that appear on the balance sheet, identify each as an asset

(A), liability (L), or element of stockholders’ equity (SE). For any item that would not appear

on the balance sheet, write the letter, N.

Chapter 01 – Financial Statements and Business Decisions

105. Rose Corporation began operations at the start of 2010. During 2010, it made cash and

credit sales totaling $500,000 and collected $420,000 in cash from its customers. It purchased

inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was

$210,000. The corporation incurred the following expenses during 2010:

Requirements:

1. Prepare an income statement showing revenues, expenses, pretax income, income tax

expense, and net income for the year ended December 31, 2010.

2. Based on the above information, what is the amount of accounts receivable on the balance

sheet prepared as of December 31, 2010?

3. Based on the above information, what is the amount of retained earnings on the balance

sheet prepared as of December 31, 2010?

Chapter 01 – Financial Statements and Business Decisions

106. Cosmos Corporation was established on December 31, 2010, by a group of investors

who invested a total of $1,000,000 for shares of the new corporation’s stock. During the

month of January, 2011, Cosmos provided services to customers for which the total revenue

was $100,000. Of this amount, $10,000 had not been collected by the end of January. Cosmos

recorded salary expense of $20,000, of which 90% had been paid by the end of the month;

rent expense of $5,000, which had been paid on January 1; and other expenses of $12,000,

which had been paid by check. On January 31, 2011, Cosmos purchased a van by paying cash

of $30,000. There were no other transactions that affected cash.

Requirements:

1. In which section of the statement of cash flows would the amount of cash paid for rent be

reported?

2. In which section of the statement of cash flows would the amount of cash paid for the van

purchase be reported?

3. By how much did Cosmos’s cash increase or decrease during January, 2011?

4. What was Cosmos’s net income or net loss (after income tax expense) for the month of

January, 2011? The income tax rate was 30%.

5. Explain why the net increase or decrease in cash for a business generally will be different

than the net income, or net loss, for the same period.

Chapter 01 – Financial Statements and Business Decisions

1-60

107. Parker Pool Supply, Inc. reported the following items for the year ended December 31,

2010:

Requirements:

Prepare an income statement for the year ended December 31, 2010.