Chapter 7 Financial Statements for a Proprietorship • 143
Study
Guide
7
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.
Name Perfect
Score Your
Score
Identifying Accounting Concepts and Practices 20 Pts.
Analyzing an Income Statement 15 Pts.
Analyzing Statement of Owner’s Equity and Balance Sheet Procedures 6 Pts.
Total 41 Pts.
1. The Full Disclosure accounting concept is applied when a company always prepares financial
statements at the end of each monthly fiscal period. (p. 190)
2. Internal users of accounting information include company managers, officers, and creditors.
(p. 190)
3. The statement of owner’s equity reports changes in the capital account for a period of time. (p. 190).
8. 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. 192)
9. Information needed to prepare an income statement comes from the Account Title column
and the Income Statement columns of a work sheet. (p. 192)
10. The income statement for a service business has five sections: heading, Revenue, Expenses,
Net Income or Net Loss, and Capital. (p. 192)
11. The income statement’s account balances are obtained from the work sheet’s Income Statement
columns. (p. 192)
12. The net income on an income statement is verified by checking the balance sheet. (p. 194)
13. Double lines ruled across both amount columns of an income statement indicate that the
amount has been verified. (p. 194)
Answers
1.
2.
3.
8.
9.
10.
11.
12.
13.
F
F
T
T
T
F
T
F
T
144 • Working Papers
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.
1. Date of the income statement.
2. Heading of Expenses section.
3. Statement name.
4. Expense account titles.
5. Expense account balances.
6. The amount of net income or loss.
Answers
1.
2.
3.
4.
5.
6.
(pp. 192–195)
A
B
C
% OF
SALES
D
E F
G
TE
C
G
B
H
I
M
Name Date Class
Chapter 7 Financial Statements for a Proprietorship • 145
Part Three—Analyzing Statement of Owner’s Equity and
Balance Sheet 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.
1. The date on a monthly statement of owner’s equity prepared on May 31 is written as
(A) For Month Ended May 31, 20– (b) May 31, 20– (C) 20–, May 31 (D) none of the above.
(p. 199)
2. Information needed to prepare a statement of owner’s equity is obtained from a work sheet’s
Account Title column and (A) Income Statement columns (b) balance Sheet columns
(C) Adjustment columns (D) none of the above. (p. 199)
Answers
1.
2.
A
B
146 • Working Papers
Across
6. A negative balance that remains after total
expenses are subtracted from total income.
8. The ratio of net income to total sales.
Down
1. The calculation and interpretation of a financial
ratio.
2. The area of accounting which focuses on
2
7
8
5
4
6
3
1
TE
2
7
8
5
4
6
3
1
F
I
N
A
N
C
I
A
L
A
RETURNON
A
N
IT
F
G
E
DE FIC
U
B
SAL
E
S
R
U
O
Y
Y
A
P
N
A
L
Y
A
O
I
T
A
R
ES
U
S
Chapter 7 Financial Statements for a Proprietorship • 147
Name Date Class
7-1 WORK TOGETHER, p. 198
Preparing an income statement
5 6 7 8
ACCOUNT TITLE INCOME STATEMENT BALANCE ShEET
DEBIT CrEDIT DEBIT CrEDIT
12 Sales 5 8 0 0 00 12
13 Advertising Expense 7 5 0 00 13
14 Cash Short and Over 3 00 14
15 Insurance Expense 6 1 0 00 15
% OF
SALES
Hair Care Salon
Income Statement
For Month Ended May 31, 20 – –
Revenue:
Sales 5 8 0 0 00 100.0
Expenses:
Advertising Expense 75000
Cash Short and Over 3 00
Insurance Expense 61000
148 • Working Papers
7-1 ON YOUR OWN, p. 198
Preparing an income statement
5 6 7 8
ACCOUNT TITLE INCOME STATEMENT BALANCE ShEET
DEBIT CrEDIT DEBIT CrEDIT
12 Sales 3 4 0 0 00 12
13 Advertising Expense 2 2 5 00 13
14 Cash Short and Over 1 00 14
15 Insurance Expense 3 4 0 00 15
22 22
23 23
% OF
SALES
TE
Plumbing Solutions
Income Statement
For Month Ended February 28, 20 – –
Revenue:
Sales 3 4 0 0 00 100.0
Expenses:
Advertising Expense 22500
Cash Short and Over 1 00
Insurance Expense 34000
Chapter 7 Financial Statements for a Proprietorship • 149
Name Date Class
7-2 WORK TOGETHER, p. 205
Preparing a statement of owner’s equity and a balance sheet
7 8
ACCOUNT TITLE BALANCE ShEET
DEBIT CrEDIT
1Cash 4 7 5 0 00 1
2Petty Cash 7 5 00 2
3Accounts Receivable—G. Mackermann 8 2 5 00 3
4Accounts Receivable—R. Whu 7 1 5 00 4
5Supplies 1 1 0 00 5
6Prepaid Insurance 3 2 0 00 6
22 7 9 9 5 00 7 9 9 5 00 22
23 23
1.
All Pro Painters
Statement of Owner’s Equity
For Month Ended April 30, 20–
Dwight Sundeen, Capital, April 1 3 5 0 0 00
Net Income 3 7 3 0 00
150 • Working Papers
7-2 WORK TOGETHER, p. 205
Preparing a statement of owner’s equity and a balance sheet
2.
TE
All Pro Painters
Balance Sheet
April 30, 20 – –
Assets Liabilities
Cash 4 7 5 0 00 Accts. Payable—Belmont Supplies 2 7 5 00
Petty Cash 7 5 00 Accts. Payable—Lurgert Paints 4 9 0 00
Accts. Receivable.—G. Mackermann 8 2 5 00 Total Liabilities 7 6 5 00
Chapter 7 Financial Statements for a Proprietorship • 151
7-2 ON YOUR OWN, p. 205
Preparing a statement of owner’s equity and a balance sheet
7 8
ACCOUNT TITLE BALANCE ShEET
DEBIT CrEDIT
1Cash 2 6 5 0 00 1
2Petty Cash 2 0 0 00 2
3Accounts Receivable—Sunshine Café 2 5 0 00 3
4Accounts Receivable—Dependable Cleaners 1 3 0 00 4
5Supplies 3 5 0 00 5
1. A-1 Computer Repair
Statement of Owner’s Equity
For Month Ended October 31, 20–
Eva Nelson, Capital, October 1 3 9 5 0 00
Net Income 9 6 0 00
Eva Nelson, Drawing 1 5 0 0 00 (5 4 0 00)
152 • Working Papers
7-2 ON YOUR OWN, p. 205
Preparing a statement of owner’s equity and a balance sheet
TE
A-1 Computer Repair
Balance Sheet
October 31, 20 – –
Assets Liabilities
Cash 2 6 5 0 00 Accts. Pay.—Computer Supplies Co. 3 4 0 00
Petty Cash 2 0 0 00 Accts. Payable—Westside Supplies 1 2 0 00
Accts. Receivable—Sunshine Café 2 5 0 00 Total Liabilities 4 6 0 00
Chapter 7 Financial Statements for a Proprietorship • 153
Name Date Class
7-1 APPLICATION PROBLEM (LO1, 2), p. 208
Preparing an income statement
1., 2.
% OF
SALES
Lincoln Lawn Service
Income Statement
For Month Ended January 31, 20 – –
Revenue:
Sales 4 1 1 3 00 100.0
Expenses:
Advertising Expense 25000
Cash Short and Over 2 00
Insurance Expense 47500
154 • Working Papers
7-2 APPLICATION PROBLEM (LO3), p. 208
Preparing a statement of owner’s equity and a balance sheet
1.
2.
Lee’s Home Repair
Balance Sheet
January 31, 20 – –
Assets Liabilities
Cash 1 9 0 0 00 Accounts Payable—Superior Supplies 4 0 0 00
Petty Cash 2 0 0 00 Accounts Payable—Media Plus 3 0 0 00
Accounts Receivable—J. Greenstein 1 7 5 00 Total Liabilities 7 0 0 00
TE
Lee’s Home Repair
Statement of Owner’s Equity
For Month Ended January 31, 20–
Timothy Lee, Capital, January 1 2 1 2 8 00
Net Income 7 9 7 00
Chapter 7 Financial Statements for a Proprietorship • 155
Name Date Class
7-M MASTERY PROBLEM (LO1, 2, 3), p. 209
Preparing financial statements with a net loss
1., 2.
% OF
SALES
3.
Eiler Copy Service
Income Statement
For Month Ended September 30, 20 – –
Revenue:
Sales 1 6 3 5 00 100.0
Expenses:
Eiler Copy Service
Statement of Owner’s Equity
For Month Ended September 30, 20–
Cheryl Eiler, Capital, September 1 4 6 6 8 00
Net Loss 2 3 1 00
156 • Working Papers
7-M MASTERY PROBLEM (LO1, 2, 3), p. 209
Preparing financial statements with a net loss
4.
TE
Eiler Copy Service
Balance Sheet
September 30, 20 – –
Assets Liabilities
Cash 3 4 8 0 00 Accounts Payable—Supplies Plus 3 0 6 00
Petty Cash 7 5 00 Owner’s Equity
Accounts Receivable—S. Romano 9 8 00 Cheryl Eiler, Capital 4 1 3 7 00
Name Date Class
Chapter 7 Financial Statements for a Proprietorship • 157
7-C CHALLENGE PROBLEM (LO1, 2, 3), p. 210
Preparing financial statements with two sources of revenue and a net loss
1., 2.
% OF
SALES
3.
Scow Art School
Income Statement
For Month Ended October 31, 20 – –
Revenue:
Sales—Lessons 2 1 0 0 00
Sales—Group Classes 3 6 0 0 00
5 7 0 0 00 100.0
Scow Art School
Statement of Owner’s Equity
For Month Ended October 31, 20–
Greg Scow, Capital, October 1 4 5 2 7 00
Net Loss 8 2 7 00
158 • Working Papers
7-C CHALLENGE PROBLEM (LO1, 2, 3), p. 210
Preparing financial statements with two sources of revenue and a net loss
4.
TE
Scow Art School
Balance Sheet
October 31, 20 – –
Assets Liabilities
Cash 2 0 6 0 00 Accounts Payable—Tampa Supply 5 4 5 00