92) Classify the following accounts according to the appropriate balance sheet category.
a. Assets
b. Liabilities
c. Shareholders’ equity
_____ 1. Common stock
_____ 2. Retained earnings
_____ 3. Notes payable
_____ 4. Cash
_____ 5. Inventory
_____ 6. Land
1) Which of the following statements reports the line item Gross profit?
A) the single-step income statement
B) the multistep income statement
C) the single-step balance sheet
D) the multistep balance sheet
2) An audit opinion ________.
A) is a report prepared by a Certified Public Accountant (CPA) indicating the financial
statements have been examined
B) is required by the Securities and Exchange Commission to accompany the financial
statements of publicly-traded companies
C) is a report prepared by the Internal Revenue Service (IRS)
D) is two or more of these
3) Lox Stock & Bagel Company
a._____________________________
April 30, 2012
Cash b. $_________ Accounts payable $ 2,000
Inventory 1,610 Notes payable 15,000
Supplies 300
Land 10,000 Common stock 10,000
Building (net) 25,000 Retained earnings c.
$39,910 $39,910
From Lox Stock & Bagel Company’s financial statement above, determine what form of
organization it is.
A) Sole proprietorship
B) Partnership
C) Corporation
D) There is not enough information to tell.
4) The Securities and Exchange Commission (SEC) requires all publicly-traded corporations to
file their 10-K reports using XBRL (Extensible Business Reporting Language).
5) The Securities and Exchange Commission (SEC) requires all publicly traded companies to file
a report called the 10-K after the end of each company’s fiscal year.
6) Many of the largest CPA firms are global and perform audits all over the world. Foreign
countries have different accounting and auditing rules than the United States. If the CPA firm is
performing an audit of a foreign company that trades its stock on a U.S. stock exchange, should
the financial statements and the audit conform to U.S. generally accepted accounting principles
and auditing rules or the foreign county’s rules?
7) Review the following income statement for Up Against the Wall, a wallpaper store. Then
answer the following questions.
Up Against the Wall
Income Statement
For the Month Ended July 31, 2012
Revenues $17,440
Cost of goods sold (6,975)
Gross profit $10,465
Expenses
Rent $ 1,650
Wages 1,369
Advertising 830
Total expenses (3,840)
Net income $6,625
a. What does gross profit represent?
b. Can you tell whether or not the expenses are reasonable compared to the amount of income?
c. Ms. Machier, the owner of Up Against the Wall, is looking for a partner. As a potential
investor, does this income statement present a favorable or unfavorable impression of the success
of the business?
d. What other information would you require before you invested in this business?
8) Adam Key started a lock service out of his house. It is profitable, but the latest statement of
changes in shareholders’ equity shows a decrease. Review the statement and advise Adam on
what the business should do.
Adam Key’s Locks
Statement of Changes in Shareholders’ Equity
For the Month of September 30, 2012
Beginning contributed capital $40,000
Add: Capital contributed during the month 0
Ending contributed capital $40,000
Beginning retained earnings $27,000
Add: Net income 3,000
Less: dividends (3,500)
Ending retained earnings $26,500
9) Tina is worried about the current financial state of Team Shirts, Inc. Her latest statement of
cash flows shows a net decrease in cash. Review and analyze the following summary statement.
Is Tina’s business in trouble? Should she be worried? What should she do to improve the cash
flow situation?
Team Shirts, Inc.
Statement of Cash Flows
For the Month of March 31, 2012
Cash from operating activities: $ 1,200
Cash used for investing activities: (1,650)
Cash used for financing activities: (2,000)
Net decrease in cash $(2,450)
10) Examine the balance sheet for Out of Africa. Make any changes that you believe are
necessary for a proper presentation, and then prepare a corrected balance sheet.
Out of Africa
Balance Sheet
For the Month Ended October 31, 2012
Assets Liabilities
Accounts payable $ 1,850 Accounts receivable $2,700
Retained earnings 21,650
Store equipment 15,000 Shareholders’ equity
Inventory 8,950 Cash 6,850
Contributed capital 10,000
Total assets 25,800 Total liabilities and shareholders’ equity 19,550
11) Review the income statement and make any corrections that you feel are necessary.
Bank, Rupp & Baroque, Inc.
Income Statement
For the Month Ended November 30, 2012
Revenues
Sales $38,000
Accounts receivable 5,800
Total revenues $43,800
Expenses
Rent $ 3,000
Accounts payable 7,500
Salaries 3,750
Maintenance 850
Total expenses 15,100
Net income (loss) $28,700
12) Below is an income statement for Daily Kneads. Fill in the missing amounts.
Daily Kneads
Income Statement
For the Month Ended September 30, 2012
Sales a. ________
Cost of goods sold $100,000
Gross profit $200,000
Administrative expenses b. ________
Operating income $80,000
Interest expense c. ________
Earnings before taxes $70,000
Income taxes (rate 35%) d. ________
Net income e. ________
13) Part A: Record the transactions below by filling in the amount and the account title from the
list of accounts. Use “()” or “-” to show the amounts that are negative:
Account – abbreviation Account – abbreviation Account – abbreviation
Cash Inventory – inv Rent expense – Rent exp
Common stock – CS Interest expense – Int exp Sales revenue – Sales
Cost of goods sold – COGS Notes payable – NP Wages expense – Wages exp
Dividends – Div
Part B: Using the transactions from Part A, fill in the missing information on the following
financial statements:
Part C: Using the transactions and financial statements from Parts A and B, answer the
following questions:
Part D: Put an “X” in the column of the financial statement where the following information is
found. There is only one best answer for each. IS stands for income statement, SE for statement
of changes in shareholders’ equity, SOCF for statement of cash flows, and BS for balance sheet.
