1. a. T of F: Investors are an example of an external user (business stakeholder) of financial information. (If false, identify and correct the errors.)

b. T or F: An employee of a company would be a business stakeholder. (If false, identify and correct the errors.)

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 assumption.

b. Which accounting concept requires expenses to be recorded in the same accounting period as the revenues to which they relate?

____________________________________Why this is important?

_____3. Assume you received services yesterday from your physician, Dr. Ima Pain. You will not you pay the $100 bill for services until next month. The accrual basis method of accounting is used by the Pain Medical Clinic; therefore, wages paid by the Pain Medical Clinic to staff are recorded and reported when incurred.

Wages are considered incurred when the:

a. Workers spend their paychecks

b. Workers show up at the clinic to work

c. Patient pays the bill

d. Workers render services, regardless of when the patient pays for services

Accy 306 Quiz #2, page 2 of 3

4. Match accounting assumption with most appropriate statement.

A.	Business Entity	E. Consistency
B.	Time Period	F. Realization
C.	Historical Cost	G. Transaction Approach
D.	Going Concern	H. Full Disclosure

a.	Financial statements are prepared periodically.
b.	All significant relevant information is reported.
c.	DSW Shoes routinely sends emails announcing sales for preferred customers, but does not record a sale until a customer makes a purchase.
d.	The company uses the same accounting principle from period to period.
f.	Land is recorded at $25,000, which was the amount paid. Current value of the land is $75,000.
g.	Subscription fees collected in advance are recorded as unearned subscription income and later recognized when earned.
h.	Online retailer Amazon, Inc. is financially sound and will continue in business indefinitely.

_____5. The following data relate to Smith Company for the year ended December 31, 2017. The company uses the accrual basis. (Show work for partial credit)

Sales on credit	$375,000
Cost of inventory sold on credit	170,000
Collections from customers	205,000
Purchase of inventory on credit	185,000
Payment for purchases	125,000
Selling expenses (accrual basis)	65,000
Payment for selling expenses	45,000

Which of the following amounts represents net income for Smith Company for the year ended December 31, 2017?

a. ($10,000)

b. $140,000

c. $35,000

d. $160,000

e. $175,000

What is net income using cash basis? ______________