Question

1.

____ a) Internal users of financial information for ABC Manufacturing Company would include all of the following EXCEPT:

1. Owners
2. Investment Advisors employed by a consulting firm
3. Employees
4. Management

____ b) Accounting systems include all the following elements, except:

1. Framework
2. Rules
3. Order
4. Controls

2.

_____ a. T or F: Assume you own more than one business. The financial records are prepared separately for each business. The records are also separate and distinct from your personal finances. This methodology relies on the going concern concept. (If false, identify error and correct.)

______b. T or F The accrual basis method of accounting requires revenue to be recognized when performance obligations are satisfied. (If false, identify error and correct.)

_____3. The following data relate to Lexi Company for the year ended December 31, 2018. The company uses the accrual basis method of accounting. (Show work for partial credit)

Sales on credit	$725,000
Cost of inventory sold on credit	505,000
Collections from customers	715,000
Purchase of inventory on credit	325,000
Payment for purchases	250,000
Selling expenses (accrual basis)	55,000
Payment for selling expenses	50,000

Compute net income using accrual basis and select response below:

a. $880,000

b. $415,000

c. $165,000

d. $725,000

Compute net income using cash basis and insert here: ______________

Answer 1

1). a). Answer is b). Investment Advisors employed by a consulting firm

b). Answer is c. Order.

2). a). Statement is False. The methodology is relies on Business Entity Concept which means Separate and distinct from the owners.

b). Statement is True. Accural basis of revenue recognition implies revenue is recognised when performance obligation is fulfilled.

3). Calculation of Net Income on accrual basis.

Sales = $725,000
Less: Cost of Inventory sold = $505,000
Less: Selling expenses = $55,000
Net Income = $165,000

Hence answer is c. $165,000

Calculation of Net Income on cash basis.

Collection from Customers = $715,000
Less: Payment for purchases = $250,000
Less: Payment for Selling expenses = $50,000
Net Income = $415,000