1. Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers, $305,000; Cash paid for rent, $33,000; Cash paid to employees for services rendered during the year, $113,000; Cash paid for utilities, $43,000.

In addition, you determine that customers owed the company $53,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $1,300 at year-end, and the rent payment was for a two-year period.

Calculate accrual net income for the year.

Net income

?

2. Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy.

	Year 1			Year 2
Amounts billed to customers for services rendered	$	172,000		$	222,000
Cash collected from customers		161,000			191,000
Cash disbursements:
Salaries paid to employees for services rendered during the year		91,000			101,000
Utilities		30,500			41,000
Purchase of insurance policy		60,300			0

In addition, you learn that the company incurred utility costs of $35,500 in year 1, that there were no liabilities at the end of year 2, no anticipated bad debts on receivables, and that the insurance policy covers a three-year period.

Required:
1.	Calculate the net operating cash flow for years 1 and 2. (Net cash outflows should be indicated by a minus sign.)

	Year 1	Year 2
Net operating cash flow	?	?

2.	Prepare an income statement for each year according to the accrual accounting model.

PETE, PETE, AND ROY

Income Statements

	Year 1	Year 2
Revenues	?	?
Expenses:
Salaries	?	?
Utilities	?	?
Insurance	?	?
Net income (loss)	?	?

3.	Determine the amount of receivables from customers that the company would show in its year 1 and year 2 balance sheets prepared according to the accrual accounting model.

	Year 1	Year 2
Receivables	?	?

3. Listed below are several terms and phrases associated with basic assumptions, broad accounting principles, and constraints. Pair each item from List A with the item from List B that is most appropriately associated with it.

	List A	List B
1.	Expense recognition	a.) A common denominator is the dollar.? b.) All information that could affect decisions should be reported? c.) Concerns that relative size of an item and its effect on decisions. d.)Criteria usually satisfied for products at point of sale. e.) Record expenses in the period the related revenue is recognized. f.) The enterprise is separate from its owners and other entities. g.)The entity will continue indefinitely. h.) The life of an enterprise can be divided into artificial time periods. i.) The original transaction value upon acquisition.
2.	Periodicity	a,b,c,d,e,f,g,h,i ?
3.	Historical cost principle	a,b,c,d,e,f,g,h,i ?
4.	Materiality	a,b,c,d,e,f,g,h,i ?
5.	Revenue recognition	a,b,c,d,e,f,g,h,i ?
6.	Going concern assumption	a,b,c,d,e,f,g,h,i ?
7.	Monetary unit assumption	a,b,c,d,e,f,g,h,i ?
8.	Economic entity assumption	a,b,c,d,e,f,g,h,i ?
9.	Full-disclosure principle	a,b,c,d,e,f,g,h,i ?

4. Listed below are several statements that relate to financial accounting and reporting. Identify the basic assumption, broad accounting principle, or component that applies to each statement.

1.	Jim Marley is the sole owner of Marleys Appliances. Jim borrowed $100,000 to buy a new home to be used as his personal residence. This liability was not recorded in the records of Marleys Appliances.	a.) Expense recognition (also the going concern assumption) b.) Materiality c.) the economic entity assumption d.) The going concern assumption. e.)The historical cost (original transaction value) principle f.) The periodicity assumption g.) The realization (revenue recognition) principle.
2.	Apple Inc. distributes an annual report to its shareholders.	A,b,c,d,e,f,g ?
3.	Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives.	A,b,c,d,e,f,g ?
4.	Crosby Company lists land on its balance sheet at $120,000, its original purchase price, even though the land has a current fair value of $200,000.	A,b,c,d,e,f,g ?
5.	Honeywell Corporation records revenue when products are delivered to customers, even though the cash has not yet been received.	A,b,c,d,e,f,g ?
6.	Liquidation values are not normally reported in financial statements even though many companies do go out of business.	A,b,c,d,e,f,g ?
7.	IBM Corporation, a multibillion dollar company, purchased some small tools at a cost of $800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense.	A,b,c,d,e,f,g ?