Question

a) External users of financial information for Sams world, Inc. would include:

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

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

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

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 cash 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 Shelley Company for the year ended December 31, 2019. The company uses the accrual basis method of accounting.  (Show work for partial credit)

Sales on credit	$750,000
Cost of inventory sold on credit	528,000
Collections from customers	675,000
Purchase of inventory on credit	322,000
Payment for purchases	275,000
Selling expenses (accrual basis)	50,000
Payment for selling expenses	45,000

Compute net income using accrual basis and select response below:

a.  $205,000

b.  $172,000

c.  $355,000

d.  $527,000

Compute net income using cash basis and insert here:        ______________

Answer 1

1a, Option (b) is correct

External users of financial information would include investment advisors employed by consulting firm.

Other options are incorrect as owners, employees and management are internal users of financial information.

1b. Option (d) is the answer

Accounting systems do not include framework.

2a. FALSE

This methodology is not going concern concept rather it is entity concept.

2b. FALSE

Under cash basis, revenue is recognized when received.

3. Option (b) is correct

Net income using accrual basis is:

Net income = Sales on credit - Cost of inventory sold on credit - Selling expenses

Net income = $750000 - $528000 - $50000

Net income = $172000

4,. Net income using cash basis is:

Net income = Collections from customers - Payment for purchases - Payment for selling expenses

Net income = $675000 - $275000 - $45000

Net income = $355000