1.

Comparing the Income Statement and the Statement of Cash Flows

On January 1, Hi-r-Ed Wired Connection opened for business across the street from Northside University. The company charges students a monthly fee of $20 and $1 for each hour they are online. During January, 500 students signed up for the service, and each will have until the fifth of the following month to pay the monthly fee. By the end of January, 200 students had paid the monthly fee. Student usage, payable at the time connected, was 2,700 hours during January. Assume that Hi-r-Ed uses the accrual basis of accounting.

Required:

1. Prepare the Revenues section of Hi-r-Ed's income statement for the month of January.

Hi-r-Ed Wired Connection

Income Statement (partial)

For the Month Ended January 31

Revenues:

Membership fees

$

Online usage fees

Total revenue

$

2. Prepare the Cash Receipts section of Hi-r-Ed's statement of cash flows for the month of January.

Hi-r-Ed Wired Connection

Statement of Cash Flows (partial)

For the Month Ended January 31

Cash received from:

Membership fees

$

Online usage fees

3. In addition to the Cash account, what other account will appear on Hi-r-Ed's balance sheet at the end of January?

_________________

What amount will be in this account?

$ _________________

2.

eBook

The Matching Principle

Three methods of matching costs with revenue were described in the chapter:

(a) directly match a specific form of revenue with a cost incurred in generating that revenue,

(b) indirectly match a cost with the periods during which it will provide benefits or revenue, and

(c) immediately recognize a cost incurred as an expense because no future benefits are expected.

For each of the following costs, indicate how it is normally recognized as expense by selecting (a), (b), (c), or a combination of these choices.

1. New office copier _________________

2. Monthly bill from the utility company for electricity _________________

3. Office supplies _________________

4. Biweekly payroll for office employees _________________

5. Commissions earned by salespeople _________________

6. Interest incurred on a six-month loan from the bank _________________

7. Cost of inventory sold during the current period _________________

8. Taxes owed on income earned during current period _________________

9. Cost of three-year insurance policy _________________