Study

Perfect Your
Name Score Score
Identifying Accounting Concepts and Practices 20 Pts.

Guide Analyzing an Income Statement

Analyzing Balance Sheet Procedures
15
5
Pts.
Pts.

7 Total 40 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 Full Disclosure accounting concept is applied when a company always prepares financial  1. F
statements at the end of each monthly fiscal period. (p. 190)
 2. Internal users of accounting information include company managers, officers, and creditors.  2. F
(p. 190)
 3. An income statement reports information on a specific date indicating the financial condition  3. F
of a business. (p. 192)
 4. The Matching Expenses with Revenue accounting concept is applied when the revenue earned  4. T
and the expenses incurred to earn that revenue are reported in the same fiscal period. (p. 192)
 5. Information needed to prepare an income statement comes from the Account Title column  5. T
and the income Statement columns of a work sheet. (p. 192)
 6. The income statement for a service business has five sections: heading, Revenue, Expenses,  6. F
Net Income or Net Loss, and Capital. (p. 192)
 7. The income statement’s account balances are obtained from the work sheet’s Income Statement  7. T
columns. (p. 192)
 8. The net income on an income statement is verified by checking the balance sheet. (p. 194)  8. F
 9. Double lines ruled across both amount columns of an income statement indicate that the  9. T
amount has been verified. (p. 194)
10. A financial ratio is a comparison between two components of financial information. (p. 195) 10. T
11. Financial ratios on an income statement are calculated by dividing sales and total expenses 11. F
by net income. (p. 195)
12. No company should have a vertical analysis ratio for total expenses higher than 48.0%. 12. F
(p. 196)
13. When a business has two different sources of revenue, both revenue accounts are listed on 13. T
the income statement. (p. 197)
14. An amount written in parentheses on a financial statement indicates a negative amount. (p. 197) 14. T
15. A balance sheet reports financial information on a specific date and includes the assets, 15. T
liabilities, and owner’s equity. (p. 199)
16. A balance sheet reports information about the elements of the accounting equation. (p. 201) 16. T
17. The owner’s capital amount reported on a balance sheet is calculated as: capital account 17. F
balance plus drawing account balance, less net income. (p. 202)
18. The position of the total asset line on the balance sheet is determined after the Equities section 18. T
is prepared. (p. 202)
19. Double lines are ruled across the balance sheet columns to show that the column totals have 19. T
been verified as correct. (p. 202)
20. The owner’s equity section of a balance sheet is the same for all businesses. (p. 203) 20. F

Chapter 7 Financial Statements for a Proprietorship • 143

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 143 21/11/12 3:24 AM

 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.

A
B
C

% OF
SALES

D
E F
G
H I

J K N
L M O

(pp. 192–195) Answers

 1. Date of the income statement.  1. C
 2. Heading of Expenses section.  2. G
 3. Statement name.  3. B
 4. Expense account titles.  4. H
 5. Expense account balances.  5. I
 6. The amount of net income or loss.  6. M
 7. Heading of Revenue section.  7. D
 8. Net income ratio (or return on sales).  8. O
 9. Revenue account title.  9. E
10. Words Total Expenses. 10. J
11. Business name. 11. A
12. Total amount of revenue. 12. F
13. Total amount of expenses. 13. K
14. Words Net Income or Net Loss. 14. L
15. Total expenses ratio. 15. N

144 • Working Papers TE

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 144 21/11/12 3:24 AM

 Name  Date  Class

Part Three—Analyzing 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.
Answers
 1. The date on a monthly balance sheet prepared on July 31 is written as (A) For Month Ended  1. B
July 31, 20-- (B) July 31, 20-- (C) 20--, July 31 (D) none of the above. (p. 199)
 2. Information needed to prepare a balance sheet’s Assets section is obtained from a work  2. C
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. 201)
 3. Information needed to prepare a balance sheet’s liabilities section is obtained from a work  3. D
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. 201)
 4. The amount of capital reported on a balance sheet is calculated as (A) Capital Account  4. A
Balance + Net Income – Drawing Account Balance (B) Capital Account Balance – Net
Income – Drawing Account Balance (C) Capital Account Balance + Net Income + Drawing
Account Balance (D) Capital Account Balance – Net Income + Drawing Account
Balance. (p. 202)
 5. If a business wanted to show how the current capital balance was calculated, it would (A)  5. D
only list net income on the balance sheet (B) only list net income and withdrawals on the
balance sheet (C) list only the beginning capital balance on the balance sheet (D) list the
beginning capital balance, the net income, the withdrawals, and the ending capital balance
on the balance sheet. (p. 203)

Chapter 7 Financial Statements for a Proprietorship • 145

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 145 21/11/12 3:24 AM

 1
R
2 3
F P A
I A T
N Y I
A Y O
4
N B O A
5
C U F U N
6
I D E F I C I T R A
7
A S G N S L
L U E A E Y
8
A R E T U R N O N S A L E S
C P C F I
9
V E R T I C A L A N A L Y S I S F S
O U A I
10
U S T A K E H O L D E R S
N R S
T A T
I T
N I
11
M A N A G E R I A L A C C O U N T I N G

Across
  6. A negative balance that remains after total
expenses are subtracted from total income.
  8. The ratio of net income to total sales.
  9. Reporting an amount on a financial statement as
a percentage of another item on the same
financial statement.
10. Any persons or groups who will be affected by
an action.
11. The area of accounting which focuses on
reporting information to internal users.
Down
  1. The calculation and interpretation of a financial
ratio.
  2. The area of accounting which focuses on
reporting information to external users.
  3. A budgeting strategy of setting aside at least 10%
of after-tax income for saving and investing.
  4. A financial road map used by individuals and
companies as a guide for spending and saving.
  5. A comparison between two components of
financial information.
  7. A positive balance that remains after total
expenses are subtracted from total income.

146 • Working Papers TE

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 146 21/11/12 3:24 AM

 Name  Date  Class

7-1 WORK TOGETHER, p. 198

Preparing an income statement

5 6 7 8
INCOME STATEMENT Balance Sheet
ACCOUNT TITLE
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

16 Miscellaneous Expense 1 6 7 00 16

17 Supplies Expense 5 4 0 00 17

18 Utilities Expense 3 0 0 00 18

19 2 3 7 0 00 5 8 0 0 00 7 5 5 4 00 4 1 2 4 00 19

20 Net Income 3 4 3 0 00 3 4 3 0 00 20

21 5 8 0 0 00 5 8 0 0 00 7 5 5 4 00 7 5 5 4 00 21

22 22

23 23

Hair Care Salon

Income Statement
For Month Ended May 31, 20 - -
% OF
SALES

Revenue:
Sales 5 8 0 0 00 100.0
Expenses:
Advertising Expense 7 5 0 00
Cash Short and Over 3 00
Insurance Expense 6 1 0 00
Miscellaneous Expense 1 6 7 00
Supplies Expense 5 4 0 00
Utilities Expense 3 0 0 00
Total Expenses 2 3 7 0 00 40.9
Net Income 3 4 3 0 00 59.1

Chapter 7 Financial Statements for a Proprietorship • 147

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 147 21/11/12 3:24 AM

 7-1 ON YOUR OWN, p. 198
Preparing an income statement

5 6 7 8
INCOME STATEMENT Balance Sheet
ACCOUNT TITLE
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

16 Miscellaneous Expense 2 1 0 00 16

17 Supplies Expense 9 8 00 17

18 Utilities Expense 1 4 0 00 18

19 1 0 1 4 00 3 4 0 0 00 3 6 2 0 00 1 2 3 4 00 19

20 Net Income 2 3 8 6 00 2 3 8 6 00 20

21 3 4 0 0 00 3 4 0 0 00 3 6 2 0 00 3 6 2 0 00 21

22 22

23 23

Plumbing Solutions
Income Statement
For Month Ended February 28, 20 - -
% OF
SALES

Revenue:
Sales 3 4 0 0 00 100.0
Expenses:
Advertising Expense 2 2 5 00
Cash Short and Over 1 00
Insurance Expense 3 4 0 00
Miscellaneous Expense 2 1 0 00
Supplies Expense 9 8 00
Utilities Expense 1 4 0 00
Total Expenses 1 0 1 4 00 29.8
Net Income 2 3 8 6 00 70.2

148 • Working Papers TE

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 148 21/11/12 3:24 AM

 Name  Date  Class

7-2 WORK TOGETHER, p. 205

Preparing a balance sheet

7 8

Balance Sheet
ACCOUNT TITLE
Debit credit

1 Cash 4 7 5 0 00 1

2 Petty Cash 7 5 00 2

3 Accounts Receivable—G. Mackermann 8 2 5 00 3

4 Accounts Receivable—R. Whu 7 1 5 00 4

5 Supplies 1 1 0 00 5

6 Prepaid Insurance 3 2 0 00 6

7 Accounts Payable—Belmont Supplies 2 7 5 00 7

8 Accounts Payable—Lurgert Paints 4 9 0 00 8

9 Dwight Sundeen, Capital 3 5 0 0 00 9

10 Dwight Sundeen, Drawing 1 2 0 0 00 10

20 7 9 9 5 00 4 2 6 5 00 20

21 Net Income 3 7 3 0 00 21

22 7 9 9 5 00 7 9 9 5 00 22

23 23

All Pro Painters

Balance Sheet
April 30, 20 - -

Assets Liabilities
Cash 4 7 5 0 00 Accts. Pay.—Belmont Supplies 2 7 5 00
Petty Cash 7 5 00 Accts. Pay.—Lurgert Paints 4 9 0 00
Accts. Rec.—G. Mackermann 8 2 5 00 Total Liabilities 7 6 5 00
Accts. Rec.—R. Whu 7 1 5 00 Owner’s Equity
Supplies 1 1 0 00 Dwight Sundeen, Capital 6 0 3 0 00
Prepaid Insurance 3 2 0 00
Total Assets 6 7 9 5 00 Total Liabilities and Owner’s Equity 6 7 9 5 00

Chapter 7 Financial Statements for a Proprietorship • 149

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 149 21/11/12 3:24 AM

 7-2 ON YOUR OWN, p. 205
Preparing a balance sheet

7 8

Balance Sheet
ACCOUNT TITLE
Debit credit

1 Cash 2 6 5 0 00 1

2 Petty Cash 2 0 0 00 2

3 Accounts Receivable—Sunshine Café 2 5 0 00 3

4 Accounts Receivable—Dependable Cleaners 1 3 0 00 4

5 Supplies 3 5 0 00 5

6 Prepaid Insurance 2 9 0 00 6

7 Accounts Payable—Computer Supplies Co. 3 4 0 00 7

8 Accounts Payable—Westside Supplies 1 2 0 00 8

9 Eva Nelsen, Capital 3 9 5 0 00 9

10 Eva Nelsen, Drawing 1 5 0 0 00 10

20 5 3 7 0 00 4 4 1 0 00 20

21 Net Income 9 6 0 00 21

22 5 3 7 0 00 5 3 7 0 00 22

23 23

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. Pay.—Westside Supplies 1 2 0 00
Accts. Rec.—Sunshine Café 2 5 0 00 Total Liabilities 4 6 0 00
Accts. Rec.—Dependable Cleaners 1 3 0 00 Owner’s Equity
Supplies 3 5 0 00 Eva Nelsen, Capital 3 4 1 0 00
Prepaid Insurance 2 9 0 00
Total Assets 3 8 7 0 00 Total Liabilities and Owner’s Equity 3 8 7 0 00

150 • Working Papers TE

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 150 21/11/12 3:24 AM

 Name  Date  Class

7-1 APPLICATION PROBLEM (LO1, 2), p. 208

Preparing an income statement

1., 2.

Lincoln Lawn Service

Income Statement
For Month Ended January 31, 20 - -
% OF
SALES

Revenue:
Sales 4 1 1 3 00 100.0
Expenses:
Advertising Expense 2 5 0 00
Cash Short and Over 2 00
Insurance Expense 4 7 5 00
Miscellaneous Expense 5 8 00
Supplies Expense 3 1 9 00
Utilities Expense 1 6 3 00
Total Expenses 1 2 6 7 00 30.8
Net Income 2 8 4 6 00 69.2

Chapter 7 Financial Statements for a Proprietorship • 151

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 151 21/11/12 3:24 AM

 7-2 APPLICATION PROBLEM (LO3), p. 208
Preparing a balance sheet

Lee’s Home Repair

Balance Sheet
January 31, 20 - -

Assets Liabilities
Cash 1 9 0 0 00 Accts. Pay.—Superior Supplies 4 0 0 00
Petty Cash 2 0 0 00 Accts. Pay.—Media Plus 3 0 0 00
Accts. Rec.—J. Greenstein 1 7 5 00 Total Liabilities 7 0 0 00
Supplies 1 6 0 00 Owner’s Equity
Prepaid Insurance 2 4 0 00 Timothy Lee, Capital 1 9 7 5 00
Total Assets 2 6 7 5 00 Total Liabilities and Owner’s Equity 2 6 7 5 00

152 • Working Papers TE

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 152 21/11/12 3:24 AM

 Name  Date  Class

7-M MASTERY PROBLEM (LO1, 2, 3), p. 209

Preparing financial statements with a net loss

1., 2.

Eiler Copy Service

Income Statement
For Month Ended September 30, 20 - -
% OF
SALES

Revenue:
Sales 1 6 3 5 00 100.0
Expenses:
Advertising Expense 2 2 5 00
Cash Short and Over 1 00
Insurance Expense 7 8 00
Miscellaneous Expense 4 2 00
Supplies Expense 7 0 0 00
Utilities Expense 8 2 0 00
Total Expenses 1 8 6 6 00 114.1
Net Loss (2 3 1 00) (14.1)

3.

Eiler Copy Service

Balance Sheet
September 30, 20 - -

Assets Liabilities
Cash 3 4 8 0 00 Accts. Pay.—Supplies Plus 3 0 6 00
Petty Cash 7 5 00 Owner’s Equity
Accts. Rec.—S. Romano 9 8 00 Cheryl Eiler, Capital 4 1 3 7 00
Supplies 3 9 0 00
Prepaid Insurance 4 0 0 00
Total Assets 4 4 4 3 00 Total Liabilities and Owner’s Equity 4 4 4 3 00

Chapter 7 Financial Statements for a Proprietorship • 153

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 153 21/11/12 3:24 AM

 7-C CHALLENGE PROBLEM (LO1, 2, 3), p. 210
Preparing financial statements with two sources of revenue and a net loss

1., 2.

Scow Art School

Income Statement
For Month Ended October 31, 20 - -
% OF
SALES

Revenue:
Sales—Lessons 2 1 0 0 00
Sales—Group Classes 3 6 0 0 00
5 7 0 0 00 100.0
Expenses:
Advertising Expense 6 8 5 00
Insurance Expense 1 5 0 00
Miscellaneous Expense 4 2 00
Rent Expense 2 5 0 0 00
Supplies Expense 3 1 5 0 00
Total Expenses 6 5 2 7 00 114.5
Net Loss (8 2 7 00) (14.5)

3.
Scow Art School
Balance Sheet
October 31, 20 - -

Assets Liabilities
Cash 2 0 6 0 00 Accts. Pay.—Tampa Supply 5 4 5 00
Accts. Rec.—J. Holben 1 9 0 00 Accts. Pay.—Supply Depot 9 3 0 00
Supplies 8 2 5 00 Total Liabilities 1 4 7 5 00
Prepaid Insurance 1 1 0 0 00 Owner’s Equity
Greg Scow, Capital 2 7 0 0 00
Total Assets 4 1 7 5 00 Total Liabilities and Owner’s Equity 4 1 7 5 00

154 • Working Papers TE

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHE-C21WP_MC-11-0206-007.indd 154 21/11/12 3:24 AM