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					                                        Exam 1 Study Questions (Chapters 1 – 3)
                                                      Chapter 1
Answer the self study Questions on pages 34-35 in your textbook. Solutions can be found on page51 .

True or False (if false explain why)

1.   If the assets of a company are $4,000,000 and its total liabilities equal $1,500,000, then total common stock
     equals $2,500,000.

2.   The resources (assets) that the company owns are reported on the balance sheet.

3.   The accounting period can be one month, three months, six months, one year or any time frame specified by

4.   Generally Accepted Accounting Principles (GAAP) are measurement rules used to develop information provided
     in the financial statements.

5.   The audit report is a report that describes the auditors’ opinion of the fairness of the financial statement
     presentations and the evidence gathered to support that opinion.

6.   The report of management indicates that the auditor has the primary responsibility for providing the financial
     statement information.

7.   A balance sheet is used to report the activities involving assets, liabilities, and stockholders' equity over a
     specific time period.

8.   The income statement is used to report the results of operations over a specific time period.

9.   The statement of stockholders’ equity is used to report the changes in common stock and retained earnings
     attributed to issuance of additional stock, net income (or net loss) and dividends.

10. An entity's assets come from three primary sources: creditors, investors, and profits retained in the business.

11. Buying equipment for use in the business is an operating activity.

12. Borrowing money from the bank is a financing activity.

Multiple Choice and fill in the blank
13. What items on the balance sheet are considered to be sources for financing economic resources (assets).
       a. liabilities and contributed capital, only.
       b. liabilities only.
       c. contributed capital and retained earnings, only.
       d. liabilities and stockholders' equity

EXAM 1                                                    Page 1                                         Study Questions
14. Assets total $450,000, liabilities total $120,000, and common stock totals $200,000. What is the dollar amount
    of retained earnings? $_____________

15. The net income reported on the income statement for the accounting period is reported on what other financial
         a.     balance sheet
         b.     statement of stockholders’ equity
         c.     statement of cash flow
         d.     net income is only reported on the income statement

16. Financing activities of a company include which of the following?
        a.       Selling products or services to customers.
        b.       Issuing stock to new owners.
        c.       Paying salaries to employees
        d.       Buying property.

17. The primary purpose of an audit (examination) of the financial reports of a company is to
        a.       uncover fraud.
        b.       determine who is guilty of malpractice.
        c.       determine whether the financial reports conform to GAAP.
        d.       examine every document and transaction to verify it was accurately reported.

18. The ending amount reported on the statement of cash flows is also reported on what other financial statement?
        a.      balance sheet
        b.      income statement
        c.      statement of stockholders’ equity
        d.      balance sheet and statement of stockholders’ equity


19. Describe the relationships that exist between the four financial statements. (For example: What is the order the
    financial statements are prepared and why?)

Short Answer

20. What are the five main financial statement Elements and give a short definition of each and one example of






EXAM 1                                                 Page 2                                      Study Questions
21. What are the four items needed in the heading of a financial statement and why do we need them?





22. What are the three business activities to measure?




Fill in the blank

23. Match the financial statement items to financial statement categories. Classify each balance sheet item as
    either an Asset (A), a liability (L) or a stockholders’ equity (SE) account, and each income statement account as
    either a Revenue (R ) or an expense (E).

_____ Inventory                                       _____ Utilities expense

_____ Land                                            _____ Interest payable

_____ Notes payable                                   _____ Interest revenue

_____ common stock                                    _____ Interest receivable

_____ Building                                        _____ Income tax expense

24. Identify the transaction with the business activity (Operating, Investing or Financing)

_______ Issue common stock to new owners              ________Provides services to customers for cash

_______ Borrowing money from the bank                 ________ Paying the rent for the month

_______ Paying dividends to owners                    ________ Buy property to use for the office

EXAM 1                                                   Page 3                                      Study Questions
25.        Solve for the missing amounts

                Revenue            Expenses    Net Income        Assets       Liabilities    Stockholders’
                                                (Net Loss)                                      Equity
      A         $50,000                         $13,000                        $22,000          $77,000

      B                             57,000       (4,000)        150,000        90,000

      C          82,000             49,000                      125,000                         49,000

      D          50,000                         (13,000)                       81,000           44,000

26. What is the retained earnings equation?

27. Is it the auditors’ job to detect all fraud? Why or why not?

28. Describe the three basic types of business forms?




      Salaries owed to workers                $3,100       Equipment rental                                    3,000
      Advertising for the year                 1,200       Service revenue                                    98,900
      Building, net                           82,000       Salaries for the year                              44,000
      Furniture                                3,500       Accounts payable                                    4,800
      Retained earnings                       39,000       Dividends                                               ?
      Cash                                     4,600       Common stock, includes $2,000 issued this year     50,000
      Interest cost for the year               1,100       Accounts receivable                                 6,800

Prepare the income statement, the statement of stockholders’ equity and the balance sheet for this company.
Beginning retained earnings were $23,000.

EXAM 1                                                     Page 4                                    Study Questions
                                                    Chapter 2
Answer the self study Questions on pages 85 – 86 in your textbook. Solutions can be found on the bottom of page

1.    Transaction analysis is the process of studying a transaction to determine its economic effect on the entity in
      terms of the accounting equation (also known as the accounting model A = L + SE). Use transaction analysis and
      the following transactions to answer the following questions.

Example transaction: Loaned $20,000 to the president
   1. Purchased a $200,000 building; paid by signing a $150,000 note payable and the rest in cash.
   2. Paid $5,000 for an Account payable owed to suppliers.
   3. Borrowed $75,000 from the bank.
   4. Issued more stock to owners for $10,000.
         Identify for each transaction the accounts being affected,
         the type of account,
         the direction (increase or decrease), and
         the amount

       Account/Element/                     Account/Element/                     Account/Element/
       Direction & Amount                   Direction & Amount                   Direction & Amount
Ex.    Note receivable, Asset               Cash, Asset
       +$20,000                             -$20,000




2.  Is the accounting equation in balance? Complete the following table to prove equality
                     Asset                      Liability           Stockholders’ Equity            In Balance?
Ex.    +20,000 (Note receivable)                                                              A = L + SE?
       -20,000 (Cash)                                                                         0=0




EXAM 1                                                  Page 5                                     Study Questions
3. Post the above entries into the following T accounts. Each account has beginning balances, and the example
    transaction has been posted for your review.

                Cash                                  Note Receivable                                 Building
200,000             20,000 (Ex.)             1,000                                      1,000,000
                                             20,000 (Ex.)

                                                                                              Contributed Capital
          Account Payable                              Note Payable
                   18,000                                      50,000

4. After posting to each account, what are the ending balances in each account?

           Cash                          $

           Note Receivable


           Account Payable

           Note Payable

           Contributed Capital

True or False (if false explain why)

    5.    Most companies list assets on the balance sheet in order of the size of the dollar amount of each asset.

    6.    Liabilities are probable debts or obligations that result from current and future transactions that will be paid
          for with assets or services.

    7.    An asset with a market value of $21,000 that is purchased for cash of $19,000 should be listed on the
          balance sheet at $21,000.

    8.    The Cash at end of month shown on the statement of cash flows must agree with the balance of Cash
          shown on the balance sheet.

    9.    If at the end of the accounting period the total of all the asset accounts is $450,000 and the total of all
          stockholder equity accounts is $300,000, then the total of all the liability accounts must be $750,000.

    10. Investing activities are needed to provide the funds to start a business.

EXAM 1                                                      Page 6                                      Study Questions
      11. An independent auditor's (CPA's) report is a guarantee that the financial statements are free from fraud or
          material error.

      12. External transactions are transactions the firm conducts with a separate economic entity, such as selling
          products to a customer, purchasing supplies from a vendor, paying salaries to an employee, and borrowing
          money from a bank.

      13. Borrowing cash from the bank causes assets to increase and liabilities to increase.

      14. Purchasing equipment using cash causes assets to increase.

      15. Receiving cash in advance from a customer for services to be provided in the future causes assets to
          increase and stockholders' equity to increase.

      16. The two components of stockholders' equity are debits and credits.

      17. Record the following transactions for the Stroud Music Store:
          (a) Provide music lessons to students for $12,000 on account.
          (b) Purchase music supplies on account, $1,500.
          (c) Pay rent for the current month, $2,000.
          (d) Receive $10,000 cash from students in (a) above.





      18. Consider the following T-account for accounts payable:
                                                              Accounts Payable
                                                   8,800                4,500

      (a) Compute the balance of the accounts payable account.
      (b) Give an example of a transaction that would have resulted in the $8,800 posting to the account.
      (c) Give an example of a transaction that would have resulted in the $4,500 posting in the account.

EXAM 1                                                   Page 7                                     Study Questions
   19. Use the following information to prepare a trial balance for Jefferson Company

   Cash                                $6,200                 Dividends                             $1,200
   Unearned revenue                     1,200                 Salaries expense                       2,200
   Prepaid insurance                    1,200                 Accounts receivable                    3,400
   Accounts payable                     1,900                 Common stock                           6,200
   Retained earnings                    1,600                 Service revenue                        7,100
   Utilities expense                    3,000                 Maintenance expense                      800

   20.   Based on the trial balance prepared in #19 answer the following (beginning Common stock was 5,000):
   a.    Determine total revenue
   b.    Determine total expenses
   c.    Determine net income
   d.    Determine ending retained earnings
   e.    Determine total assets
   f.    Determine total liabilities
   g.    Determine total stockholders’ equity

EXAM 1                                               Page 8                                     Study Questions
   21. Below are the steps in the measurement process of external transactions. Arrange them from first (1) to last

         _____ (a) Post the transaction to the T-accounts in the general ledger.
         _____ (b) Assess whether the impact of the transaction results in a debit or credit to the account balance.
         _____ (c) Use source documents to identify accounts affected by external transactions.
         _____ (d) Analyze the impact of the transaction on the accounting equation.
         _____ (e) Prepare a trial balance.
         _____ (f) Record transactions using debits and credits.

   22. The following transactions occur for the Hamilton Manufacturers.
       (a) Provide services to customers on account for $4,500.
       (b) Purchase equipment by signing a note with the bank for $10,000.
       (c) Pay advertising of $1,500 for the current month.
       Analyze each transaction and indicate the amount of increases and decreases in the accounting equation.

                     Assets         =       Liabilities     +      Stockholders’ Equity
          (a)                       =                       +

          (b)                       =                       +

          (c)                       =                       +

   23. Using the notion that the accounting equation (Assets = Liabilities + Stockholders' Equity) must remain in
       balance, indicate whether each of the following transactions is possible.
       (a) Cash decreases; Accounts Payable decreases.
       (b) Salaries expense increases; Salaries Payable decreases.
       (c) Accounts receivable decreases; Service revenue increases.

   24. Suppose a company has the following balance sheet accounts:

   Accounts payable                 4,200
   Building                        45,000
   Cash                             6,100
   Common stock                    24,000
   Land                            ?
   Machinery                       12,400
   Retained earnings               ?
   Notes payable                   35,000
   Supplies                           900
   TOTAL ASSETS                   114,400

   Find the amounts for:
   (a) Land
   (b) Total liabilities
   (c) Total stockholders’ Equity
   (d) Retained earnings

EXAM 1                                                    Page 9                                     Study Questions
                                                        Chapter 3
Answer the self study Questions on pages 139 – 140 in your textbook. Solutions can be found on the bottom of
page 163.

True or False (if false explain why)

1.   Every transaction affects at least two accounts.

2.   The term credit, as it applies to accounts in the accounting system, means to increase the balance of an account.

3.   A transaction can only occur between the business and an outside individual or entity.

4.   A standardized format that is used to accumulate the dollar effect of transactions on each financial statement
     item is called an account.

5.   The T-account is a simplified representation of an account, and is very useful for summarizing the transaction
     effects and determining the balance for individual accounts.

6.   The matching principle states that expenses are recognized when incurred in earning revenue.

7.   The sale of merchandise on credit and the collection from the customer ten days later constitutes one
     transaction for accounting purposes.

8.   A company that ships product to its customers in January 20B but records them as revenue in December 20A
     has not violated the revenue principle because they were manufactured and ready for sale before the
     accounting year end.

9.   We record insurance as an expense when we pay for a three-year policy.

10. Stockholders' equity is increased by investments of the owners and is decreased by net loss.

11. Rent expense and taxes payable are both elements of the income statement.

12. Revenues increase stockholders' equity, so they are recorded with credits.

13. The balance sheet is not affected by the sale of merchandise for cash.

14. The balance sheet is always prepared before the income statement.

EXAM 1                                                    Page 10                                   Study Questions
15. Net income measured under the accrual basis will equal the change in cash during the accounting period (as
    found on the statement of cash flows).

16. Supplies on hand at the beginning of the period equaled $500. During the period $1,200 of supplies were
    purchased. Since $1,000 was used during the period, the company would adjust the account balance by
    reducing the asset account, supplies, and increasing supplies expense for $700.

17. Each adjusting entry affects at least one income statement account and at least one balance sheet account.

18. Unearned rent revenue is an example of a liability account that will usually not be satisfied by payment of cash
    but rather by allowing the tenant to occupy the premises for which they have prepaid.

19. On July 1, 20A, Liz Company borrowed $5,000 cash and signed a one year note payable, interest 10 percent,
    payable on the maturity date, June 30, 20B. The accounting period ends on December 31; therefore, the
    required adjustment on December 31, 20A would be: Increase--Interest expense, $250; Increase--Interest
    payable, $250.

20. It is necessary to prepare the income statement first because we need to know net income or loss for the period
    in order to compute ending retained earnings on the statement of stockholders' equity.

    Multiple Choice and fill in the blank

21. Which of the following is false?
            A. Revenues and gains cause increase in net assets.
            B. Expenditures and expenses mean the same thing.
            C. Both A and B are false.
            D. None of the above is false.

22. A landlord received $600 cash for December 20C's rent but the tenant's rent for December is $1,000. Which of
    the following is true for year ended 20C.
             A. $600 would be reported on the statement of cash flows.
             B. $400 would appear on the balance sheet as rent receivable.
             C. $1,000 would appear on the income statement as rent revenue earned.
             D. All of the above are true.
             E. None of the above is true.

23. During 20B, Olde Company earned service revenues amounting to $300,000, of which $270,000 was collected in
    cash; the balance will be collected in January 20C. The 20B income statement of the company should report the
    following amount for service revenues
             A. $270,000.
             B. $300,000.
             C. $ 30,000.
             D. $570,000.
             E. None of the above is correct.

24. Which of the following statements is false?
         A. We recognize and record expenses when an expenditure is made.
         B. We recognize revenue when it is earned, usually upon delivery even when cash is not yet received.
         C. Cash received before we provide the service to a customer is recorded as unearned or deferred

EXAM 1                                                Page 11                                     Study Questions
           D. Expenses are matched against revenue when we incur the cost in conjunction with earning revenue.
           E. None of the above is false.

25. On January 1, 20B, Grover Inc., started the year with a $50,000 credit balance in its retained earnings account.
    During 20B, the company earned net income of $100,000 and declared and paid dividends of $30,000. Also, the
    company received cash of $15,000 as an additional investment by its owners. Therefore, the balance in retained
    earnings on December 31, 20B, would be :


26. On July 1, 20D, Allen Company signed a $50,000, one-year, 10 percent note payable. At due date, June 30, 20E,
    the principal and interest will be paid. Interest expense should be reported on the income statement (for the
    year ended December 31, 20D) as
        A) $5,000.
        B) $2,500.
        C) $1,250.
        D) $3,750.
        E) None of the above

27. On July 1, 20D, Thomas Company paid $2,400 for a two-year insurance policy on the building. The accounting
    period ends December 31. At the end of 20D, the financial statements should report
               On the Balance Sheet                    On the Income Statement
        A)     Prepaid insurance, $2,400               Insurance expense, $0.
        B)     Prepaid insurance, $0                   Insurance expense, $2,400.
        C)     Prepaid insurance, $1,800               Insurance expense, $600.
        D)     Prepaid insurance, $1,200               Insurance expense, $1,200.
        E)    None of the above is correct.

28. On December 31, 20D, the effect of recording an adjustment for interest of $1,200, which had accrued on a
    note payable, would be
    A) a decrease in stockholders' equity and decrease in an asset.
    B) a decrease in liabilities and increase in stockholders' equity.
    C) a decrease in stockholders' equity and an increase in liabilities.
    D) an increase in stockholders' equity and increase in an asset.
    E) none of the above is correct.

29. At the end of its accounting period, December 31, 20D, May Corporation owed $1,000 for property taxes which
    had not been recorded or paid. Therefore, the 20D, adjusting entry should be
    A) $1,000 decrease to an expense account and decrease to a liability account.
    B) $1,000 increase to an expense account and decrease to an asset account.
    C) $1,000 increase to a liability account and increase to an expense account.
    D) $1,000 decrease to a liability account and decrease to an asset account.
    E) None of the above is correct.

30. Assume Minor Company recorded the following adjustment at year-end:
                    Balance Sheet                                       Income Statement
           Assets            Liabilities      SE        Revenues              Expenses                NI
 Prepaid insurance -1000                                              Insurance expense +1000

    If the beginning balance in prepaid insurance was $700 and $1,500 was paid for an insurance premium during
    the year, the ending balance in the prepaid insurance account (after the above adjusting entry) would be
    A) $1,200
    B) $ 700

EXAM 1                                                Page 12                                     Study Questions
    C) $2,200
    D) $1,000

31. Failure to make an adjusting entry to recognize accrued income taxes payable would cause an
         A) understatement of expenses, liabilities and stockholders' equity.
         B) overstatement of expenses and liabilities.
         C) understatement of expenses and liabilities and an overstatement of stockholders' equity.
         D) understatement of assets and stockholders' equity.
         E) understatement of expenses and stockholders' equity.

32.     At the end of 20D, Washington Inc. made the following adjusting entry to record $10,000 of accrued and
unpaid wages:
                          Balance Sheet                                         Income Statement
         Assets           Liabilities                SE          Revenues             Expenses                   NI
                    Wages payable +10,000                                       Wage expense +10,000

    At the end of the first week of January 20E, Washington Inc. paid $40,000 in wages for the pay period including
    the $10,000 accrued in the December 31, 20D adjustment above. The entry to record the payment of this
    payroll in January 20E should include a
         A)       $40,000 increase to wages expense and a $10,000 decrease to wages payable.
         B)       $30,000 increase to wages expense and a $10,000 decrease to wages payable.
         C)       $50,000 increase to wages expense and a $10,000 decrease to wages payable.
         D)       $10,000 increase to wages expense and a $30,000 decrease to wages payable.
         E)       none of the above is correct.

33. The difference between the equipment account balance and the accumulated depreciation, equipment account
    balance is called
        A) market value
        B) acquisition cost
        C) book value
        D) net realizable value
        E) none of the above

34. At the end of 20C, Collin Company reported an ending balance for retained earnings of $150,000. During 20D,
    the company reported the following amounts: Dividends declared and paid, $20,000 and net income, $40,000.
    The 20D statement of stockholders' equity should report an ending balance for retained earnings of
    A) $190,000.
    B) $130,000.
    C) $170,000.
    D) $ 40,000.

35. Which of the following errors would most likely lead to an overstatement of income?
    A) Recording revenue next period when the cash is collected although it is earned in the current year
    B) Recording an expense incurred this year when the cash is paid next year
    C) Failure to adjust deferred rent revenue account for the portion of rent earned this year
    D) All of the above lead to overstated income this period
    E) None of the above leads to overstated income this period

36. Which of the following accounts is closed at the end of the year but does not enter the calculation of net
    A) Interest receivable
    B) Dividends declared

EXAM 1                                                 Page 13                                      Study Questions
    C) Depreciation expense
    D) None of the above is closed and entered in to the calculation of net income

    37. Explain why a $500 revenue collected in advance for service would be recorded as a debit to cash and a
        credit to a liability account.

    38. Complete the chart below for McRae Corporation by entering check marks in the appropriate spaces.

                                                                 Assets                     Liabilities
                    Transaction or Event*                                                                             Equity
                                                          Inc.            Dec.           Inc.        Dec.        Inc.        Dec.
          A.       Investors purchase McRae
          B.       Acquired supplies on credit
                   (not yet used).
                   Earned service revenue.
          D.       Paid for supplies purchased in
                   Paid expenses.

                   Paid a liability.

          G.       Recorded utility bill, but did
                   not pay it.

                                         Use the following to answer 39 and 40
39. Perform transaction analysis for Cress Company regarding the following transactions for May. Indicate an
    increase (+) or decrease (-) to the account in front of the amount.

                                                                        Assets                  Liabilities
                    Transaction Analysis                                                                              Equity
                                                             Acct.               Amt.       Acct.         Amt.    Acct.      Amt.
    Ex.        Paid wages for two weeks in May. The                                                               Wage
                                                                 Cash            -$500                                      +$500
               total cash paid was $500.                                                                         expense
    A.         Customers paid $2,000 on their
               accounts early in May.
    B.         Services were completed for
               customers. A total of $1,200 was
               billed but none of it was received in
    C.         Paid a $400 insurance premium for
               coverage for June, July, and August.
               Paid May’s telephone bill for $150.
    E.         New investors purchased Cress
               Company stock in May for $3,000.
    F.         Paid last month’s fuel bill for $100. It
               was recorded as an expense last

40. Determine whether the transactions (A)-(F) above affected cash flows. If so, determine the type of activity as an

EXAM 1                                                      Page 14                                                Study Questions
    operating activity, an investing activity, or a financing activity. If cash is not affected use “no effect.” Place a
    check mark under the appropriate column for each transaction.

                                              Type of Activity
          Transaction          Operating          Investing          Financing         No effect

41. The accounts of North Corporation showed the following balances:

          Common stock, January 1, 20B                                                    $100,000
          Retained earnings, beginning balance, January 1, 20B                             $40,000
          Total revenues earning during 20B                                               $120,000
          Total expenses incurred during 20B                                               $90,000
          Total dividends declared and paid during 20B                                      $5,000
          Issuance of stock during 20B                                                     $50,000

Give the amount that should be shown in each of the following accounts on the 20B year-end balance sheet:

                                 Common stock                    $
                                 Retained Earnings               $

Use the following to answer questions 42 – 4

The following account balances appear in the 20C adjusted trial balance of Silver Corporation:

                              Cash                                         $10,000
                              Accounts Receivable                            7,000
                              Supplies                                           500
                              Equipment                                    110,000
                              Accumulated depreciation                      20,000
                              Accounts payable                               3,000
                              Notes payable                                 35,000
                              Common stock                                  20,000
                              Retained earnings                             33,000
                              Dividends                                      2,000
                              Service revenue                              120,000
                              Salaries expense                              80,000
                              Supplies expense                               2,500
                              Rent expense                                   8,000
                              Depreciation expense                          10,000
                              Miscellaneous expense                          1,000

EXAM 1                                                 Page 15                                        Study Questions
42.. Determine total expenses for the year:                                   $___________

43. Determine net income for the year:                                        $___________

44. Determine ending retained earnings for the year:                          $___________

45. Determine ending total stockholders’ equity for the year:                 $___________

46. Determine total Current Assets at the end of the year:                    $___________

47. Determine Total Assets at the end of the year:                            $___________

48. Which of the above accounts is CLOSED at the end of the period?

49.   A list of accounts used to record the economic effects of transactions in terms of the fundamental accounting
      model is given below. You are to indicate the accounts to be increased (+) and/or decreased (-) for each
      transaction by entering the appropriate letter in each blank, put + or – in front of the letter to indicate
      increase or decrease.

          A.    Cash                                             G.      Depreciation Expense
          B.    Accounts receivable                              H.      Common stock
          C.    Office equipment                                 I.      Services revenue
          D.    Accumulated depreciation                         J       Selling expenses
          E.    Accounts payable                                 K.      Interest expense
          F.    Notes payable                                    L.      Retained earnings

          Transaction                                                      Account          Account
          1.    Purchased office equipment for cash.
          2.    Issued shares of Scooter’s stock in exchange for cash.
          3.    Recorded depreciation expense on the office
          4.    Borrowed cash from the bank on a note payable.
          5.    Provided services on credit.
          6.    Paid selling expenses with cash.
          7.    Provided services for cash.
          8.    Paid interest on notes payable.

EXAM 1                                                 Page 16                                   Study Questions
50. Several different account titles are listed below that you have studied. Under each column for each cell you are
    to enter one capital letter which indicates for each account its normal characteristics.

                                                 USE THE LETTER CODE GIVEN
                                                    CLOSING            NORMAL              FINANCIAL
          TYPE OF ACCOUNT                           STATUS             BALANCE            STATEMENT
                             L=Liabilities       C=Closed              D=Debt        B=Balance Sheet
          R=Revenue          E=Expenses          N=Not Closed          C=Credit      I=Income Statement
          C=Contra           SE=Stockholders’                                        SE=Statement of
                             Equity                                                  Stockholders’ Equity
          N=Not Applicable                                                           N=None of the above

          Account Titles                          Type of      Closing          Typical Balance            Financial
                                                  Account      Status           (before closing        Statement(s) (On
                                                                                   entries)            which reported)
          Ex.      Cash                              A             N                   D                       B
          1.       Dividends declared
          2.       Wages payable
          3.       Common stock
          4.       Rent expense
          5.       Retained earnings
          6.       Notes payable
          7.       Unearned revenue
          8.       Dividends payable
          9.       Building
          10.      Accumulated depreciation

The Country Store had the following transactions in April:

         a.      Sold $30,000 of goods to customers and received $28,000 in cash and the rest are on account
         b.      The cost of the inventory sold was $18,000
         c.      The store purchased $8,000 of inventory and paid for $6,000 in cash and the rest were bought on
         d.      They paid $8,000 in wages for the month
         e.      Received a $1,000 bill for utilities for the month that will not be paid until May
         f.      Received rent for the adjacent store front for the months of April and May in the amount of

Complete the following statements:
Cash Basis Income Statement                                        Accrual Basis Income Statement
Revenues:                                                          Revenues:
Cash Sales                              a.    ________             Sales to customers                       f.    ________

Rent Collected                          b.    ________             Rent revenue                             g.    ________
Expenses:                                                          Cost of sales                            h.    ________
Inventory purchases                     c.    ________
                                                                   Wages expense                            i.    ________
Wages paid                              d.    ________
                                                                   Utilities expense                        j.    ________
Net Income                              e.    ________
                                                                   Net Income                               k.    ________

EXAM 1                                                   Page 17                                         Study Questions

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