CHAPTER 3: ACCOUNTING IN ACTION (LO 5+ LO 6)

MULTIPLE-CHOICE QUESTION
1. Which of the following statements is false?

a. A statement of cash flows summarizes information about the cash inflows (receipts) and
outflows (payments) for a specific period of time.

b. A balance sheet reports the assets, liabilities, and owner’s equity at a specific date.

c. An income statement presents the revenues, expenses, changes in owner’s equity, and resulting
net income or net loss for a specific period of time.

d. An owner’s equity statement summarizes the changes in owner’s equity for a specific period
of time.

2. On the last day of the period, Alan Cesska Company buys a $900 machine on credit. This
transaction will affect the:

a. income statement only.

b. balance sheet only.

c. income statement and owner’s equity statement only.

d. income statement, owner’s equity statement, and balance sheet.

3. The financial statement that reports assets, liabilities, and owner’s equity is the:

a. income statement.

b. owner’s equity statement.

c. balance sheet.

d. statement of cash flows.

4. In a classified balance sheet, assets are usually classified using the following categories:
 a. current assets; long-term assets; property, plant, and equipment; and intangible assets.

b. current assets; long-term investments; property, plant, and equipment; and tangible assets.

c. current assets; long-term investments; tangible assets; and intangible assets.

d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

5. Current assets are listed:

a. by expected conversion to cash.

b. by importance.

c. by longevity.

d. alphabetically

6. Gross profit will result if:

a. operating expenses are less than net income.

b. sales revenues are greater than operating expenses.

c. sales revenues are greater than cost of goods sold.

d. operating expenses are greater than cost of goods sold.

7. If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are
$60,000, the gross profit is:

a. $30,000.

b. $90,000.

c. $340,000.

d. $400,000.
8. Which of the following is incorrect about the statement of cash flows?

a. It is a fourth basic financial statement.

b. It provides information about cash receipts and cash payments of an entity during a period.

c. It reconciles the ending cash account balance to the balance per the bank statement.

d. It provides information about the operating, investing, and financing activities of the business.

9. Which of the following is incorrect about the statement of cash flows?

a. The direct method may be used to report cash provided by operations.

b. The statement shows the cash provided (used) for three categories of activity.

c. The operating section is the last section of the statement.

d. The indirect method may be used to report cash provided by operations.

 BREIF EXERCISES

BE1-11: Indicate whether the following items would appear on the income statement (IS), balance
sheet (BS), or owner’s equity statement (OE).

BS (a) Notes payable BS (d) Cash

IS (b) Advertising expense IS,OE (e) Service revenue

OE,BS (c) Trent Buchanan, Capital

TS, Nợ ghi vào BS

Doanh thu,chi phí ghi vào IS
Góp vốn,rút vốn ghi vào OE

BE4-11: The following are the major balance sheet classifications:

Current assets (CA) Current liabilities (CL)

Long-term investments (LTI) Long-term liabilities (LTL)

Property, plant, and equipment (PPE) Owner’s equity (OE)

Intangible assets (IA)-TSVH

Match each of the following accounts to its proper balance sheet classification.

CL Accounts payable CL Income tax payable

CA Accounts receivable LTL Investment in long-term bonds

PPE Accumulated depreciation- buildings PPE Land

( khấu hao lũy kế)

PPE Buildings CA Merchandise inventory

CA Cash IA Patent ( bằng sáng chế )

IA Copyrights CA Supplies

BE5-1: Presented below are the components in Waegelain Company’s income statement. Determine
the missing amounts.
 EXERCISES

E1-10: Hawke Company had the following assets and liabilities on the dates indicated.

Hawke began business on January 1, 2019, with an investment of $100,000.

Instructions

From an analysis of the change in owner’s equity during the year, compute the net income (or loss)
for:

a. 2019, assuming Hawke’s drawings were $12,000 for the year.

b. 2020, assuming Hawke made an additional investment of $34,000 and had no drawings in 2020.

c. 2021, assuming Hawke made an additional investment of $12,000 and had drawings of
$25,000 in 2021.

Total Asset – Total Liabilities =Owner Equity

Owner equity cuối năm này là đầu năm sau
Ed OE = Bg OE + Ivestment + Neticome – Drawing
E1-11: Two items are omitted from each of the following summaries of balance sheet and income
statement data for two proprietorships for the year 2020, Greene’s Goods and Solar Enterprises.

Instructions

Determine the missing amounts.

OE=TA-TL
Ed OE = Bg OE + investment + renenues – exp - drawing
E1-14: Saira Morrow is the sole owner of Buena Vista Park, a public camping ground near the
Crater Lake National Recreation Area. Saira has compiled the following financial information as
of December 31, 2020.

Revenues during 2020—camping fees $140,000

Revenues during 2010—general store 65,000

Accounts payable 11,000

Cash on hand 23,000

Original cost of equipment 115,500

Fair value of equipment 140,000

Notes payable 60,000

Expenses during 2020 160,000

Accounts receivable 17,500

Instructions

(a) Determine Saira Morrow’s net income from Deer Park for 2010.

(b) Prepare a balance sheet for Buena Vista Park as of December 31, 2010.
E4-14: The adjusted trial balance for Karr Bowling Alley at December 31, 2010, contains the

following accounts.

Instructions

(a) Prepare a classified balance sheet; assume that $13,900 of the note payable will be paid in 2011.

(b) Comment on the liquidity of the company.

Revenue – exp = net income
E4-17: These financial statement items are for B. Snyder Company at year-end, July 31, 2010.

Instructions

(a) Prepare an income statement and an owner’s equity statement for the year. The owner did

not make any new investments during the year.

Prepare a classified balance sheet at July 31
Balance sheet as of 31/12/2010
Current Assets
Cash 24.200
Accounts receivable 9.780
Property, plant, equipment
Equipment 18.500
Less:Accumulated depreciation- Equipment (6.000)

46.480

Current Liabilities
Accounts payable 4.100
Salaries payable 2.080

Long-term Liabilities
Note payable 1.800

7.980

Owner's Equity
[Link], Capital 38.500
46.480
E5-9: Presented below is information for Obley Company for the month of March 2010.

Cost of goods sold $212,000 ( giá vốn) Rent expense $ 32,000 ( phí
thuê)
Freight-out 7,000 Sales discounts 8,000 ( giảm
giá bán)
Insurance expense 12,000 Sales returns and allowances 13,000
( hàng bán trả và
giảm giá)
Salary expense 58,000 Sales 370,000

Instructions

(a) Prepare a multiple-step income statement.

Sale revenue – giảm giá,bán trả,..= net sale
Sale revenue – net sale = COGS
Net sale – COGS = Gross profit ( LNG)
Gross profit – Total opereting = net income

(b) Compute the gross profit rate.

E17-1: Pioneer Corporation had these transactions during 2010.

(a) Issued $50,000 par value common stock for cash. ( phát hành cổ phiếu phổ thông để lấy tiền mặt)
-có tiền vào; giao dịch với CSH  Finacing ( inflow)
(b) Purchased a machine for $30,000, giving a long- term note in exchange.

(c) Issued $200,000 par value common stock upon conversion of bonds having a face value of
$200,000.

(d) Declared and paid a cash dividend of $18,000.

(e) Sold a long-term investment with a cost of $15,000 for $15,000 cash.

(f) Collected $16,000 of accounts receivable.

(g) Paid $18,000 on accounts payable.

Instructions

Analyze the transactions and indicate whether each transaction resulted in a cash flow from
operating activities, investing activities, financing activities, or noncash investing and financing
activities
PROBLEMS

P1-2A: Sonya Jared opened a law office on July 1, 2020. On July 31, the balance sheet showed
Cash $5,000, Accounts Receivable $1,500, Supplies $500, Equipment $6,000, Accounts Payable
$4,200, and Owner’s Capital $8,800. During August, the following transactions occurred.

1. Collected $1,200 of accounts receivable.

2. Paid $2,800 cash on accounts payable.

3. Recognized revenue of $7,500 of which $4,000 is collected in cash and the balance is due in
September.

4. Purchased additional equipment for $2,000, paying $400 in cash and the balance on account.

5. Paid salaries $2,800, rent for August $900, and advertising expenses $400.

6. Withdrew $700 in cash for personal use.

7. Received $2,000 from Standard Federal Bank—money borrowed on a note payable.

8. Incurred utility expenses for month on account $270.

Instructions

(a) Prepare a tabular analysis of the August transactions beginning with July 31 balances. The

column headings should be as follows: Cash + Accounts Receivable + Supplies + Office

Equipment = Notes Payable + Accounts Payable + J. Brown, Capital - J. Brown, Drawings +

Revenues - Expenses.

(b) Prepare an income statement for August, an owner’s equity statement for August, and a
balance sheet at August 31.
P1-2B: Maria Gonzalez opened a veterinary business in Nashville, Tennessee, on August 1. On August
31, the balance sheet showed Cash $9,000, Accounts Receivable $1,700, Supplies $600,

Office Equipment $6,000, Accounts Payable $3,600, and M. Gonzalez, Capital $13,700. During
September the following transactions occurred.

1. Paid $2,900 cash on accounts payable.

2. Collected $1,300 of accounts receivable.

3. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on
account.

4. Earned revenue of $8,000, of which $2,500 is paid in cash and the balance is due in October.

5. Withdrew $1,000 cash for personal use.

6. Paid salaries $1,700, rent for September $900, and advertising expense $300.

7. Incurred utilities expense for month on account $170.

8. Received $10,000 from Capital Bank–money borrowed on a note payable.

Instructions

(a) Prepare a tabular analysis of the September transactions beginning with August 31 balances.

The column headings should be as follows: Cash + Accounts Receivable + Supplies + Office
Equipment = Notes Payable + Accounts Payable + M. Gonzalez, Capital - M. Gonzalez,

Drawings Revenues - Expenses.

(b) Prepare an income statement for September, an owner’s equity statement for September, and
a balance sheet at September 30.
P1-4A: Maisie Taft started her own consulting firm, Maisie Consulting, on May 1, 2020. The
following transactions occurred during the month of May.

May 1 Maisie invested $7,000 cash in the business.

2 Paid $900 for office rent for the month.

3 Purchased $800 of supplies on account.

5 Paid $125 to advertise in the County News.

9 Received $4,000 cash for services performed. 12

Withdrew $1,000 cash for personal use.

15 Performed $6,400 of services on account. 17

Paid $2,500 for employee salaries.

20 Made a partial payment of $600 for the supplies purchased on account on May 3. 23

Received a cash payment of $4,000 for services performed on account on May 15. 26

Borrowed $5,000 from the bank on a note payable.

29 Purchased equipment for $4,200 on account.

30 Paid $275 for utilities.

Instructions

a. Show the effects of the previous transactions on the accounting equation using the following

format.

b. Prepare an income statement for the month of May.

c. Prepare a balance sheet at May 31, 2020.