Question 1

A business receives a bill from one of its suppliers for services received. The business will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of the business?

Accepted Answer

When the business receives the bill from the supplier, it creates a liability for the business as it owes money to the supplier. Thus, the liability increases while the equity decreases. This affects the accounting equation by increasing the liabilities and decreasing the equity, which ultimately balances the equation.

Question 2

The assets of Sunlight Company are $270,000 and equity is $90,000. Liabilities will be:

Accepted Answer

Liabilities can be calculated using the accounting equation: Assets = Liabilities + Equity. Therefore, Liabilities = Assets - Equity = $270,000 - $90,000 = $180,000.

Question 3

Martin Supply Service received $1,000 cash from a customer which was owed to the business from the previous month. Which of the following accounts would decrease as a result of this transaction?

Accepted Answer

Accounts Receivable would decrease because the customer paid the owed amount, which is a reduction in the amount owed to the company.

Question 4

The assets of Moon Company are $150,000 and liabilities are $90,000. The equity will be:

Accepted Answer

Equity is calculated as Assets minus Liabilities. So, $150,000 - $90,000 = $60,000.

Question 5

A business settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business?

Accepted Answer

When a business pays off a liability with cash, its assets (cash) decrease and its liabilities decrease by the same amount, keeping the accounting equation balanced.

Question 6

Sharon Samson owns Reliable Waterworks which provides plumbing service. Transactions of Reliable Waterworks during the first year of operations are given below:
A. Sharon contributed $14,000 into a new checking account for the business and recorded capital contribution.
B. Paid $2,000 for equipment to be used for plumbing repairs.
C. Borrowed $15,000 from a local bank and deposited the money in the checking account.
D. Paid $600 as rent for the year.
E. Paid $500 for plumbing supplies to be used on various jobs in the future.
F. Completed a plumbing repair project for a local lawyer and received $3,500.
Calculate the amount of total assets balance at the end of the first year.

Accepted Answer

The total assets balance can be calculated by adding up all the assets of the business which are:

1. Equipment: $2,000
2. Cash in checking account: $14,000 + $15,000 - $3,500 - $600 - $500 = $24,400
Total Assets = $2,000 + $24,400 = $26,400

Therefore, the correct option is D, $31,900.

Question 7

Following is an extract of account balances of Wilson Mowing Service as of December 31 of the first year of operation:  At the end of the year, what is the amount of total assets?

Accepted Answer

The answer of Following is an extract of account balances...

Question 8

Following is a list of account balances of Wilson Mowing Service as of December 31 of the first year of operation:  At the end of the year, what is the amount of total liabilities?

Accepted Answer

The answer of Following is a list of account balances...

Question 9

Ace Inc. had the following transactions in June: Sold goods for $4,000 on account; received cash on account, $5,000; paid $800 for repair expense; paid $2,000 to a supplier that it owed from the previous month. What is the combined effect on Cash of the June transactions?

Accepted Answer

Ace Inc. received $5,000 in cash and paid out $800 and $2,000, resulting in a net increase of $2,200 in cash.

Question 10

Lush Lawns performs lawn mowing services for its customers. The payments for the current month's services are expected to be received next month. How does this transaction affect the accounting equation of Lush Lawn?

Accepted Answer

The transaction increases accounts receivable (an asset) because the payment is expected next month, and it increases equity because the revenue from the services increases retained earnings.

Question 11

Sharon Samson starts a plumbing service named Reliable Waterworks. Selected transactions are described as follows:
A. Sharon deposited $8,000 into a new checking account for the business and recorded the capital contribution.
B. Paid $5,000 cash for equipment to be used for plumbing repairs.
C. Borrowed $10,000 from a local bank and deposited the money in the checking account.
D. Paid $800 rent for the year.
E. Paid $300 cash for plumbing supplies to be used in future.
F. Completed a plumbing repair project for a local lawyer and received $4,000 cash.
Calculate the net income.

Accepted Answer

The answer of Sharon Samson starts a plumbing service named...

Question 12

A business collects $5,000 from its customer which was owed since a previous month. How does this affect the accounting equation of the business?

Accepted Answer

The answer of A business collects $5,000 from its customer...

Question 13

Sharon Samson starts a plumbing service called Reliable Waterworks. Transactions of Reliable Waterworks during the first year of operations are given below:
A. Sharon deposited $14,000 into a new checking account for the business and recorded the capital contribution.
B. Paid $2,000 cash for equipment to be used for plumbing repairs.
C. Borrowed $15,000 from a local bank and deposited the money in the checking account.
D. Paid $600 rent for the year.
E. Purchased $900 of office supplies by cash.
F. Completed a plumbing repair project for a local lawyer and received $3,500 cash.
Calculate the amount of total liabilities at the end of the first year.

Accepted Answer

There are no expenses or purchases on credit, therefore there are no accounts payable or other current or long-term liabilities. The only liability is the loan from the bank, which is $15,000. The capital contribution and the equipment purchase are recorded as owner's equity, and the rent and office supplies are recorded as expenses but do not create any liabilities. The cash received from the plumbing repair project is also recorded as revenue and does not affect liabilities.

Question 14

If a transaction increased an asset of a business. Which of the following can be an effect of the transaction for the accounting equation to balance?

Accepted Answer

According to the accounting equation, assets = liabilities + equity. If an asset increases, either a liability or equity must also increase to balance the equation. However, none of the given options mention an increase in liability or equity. Therefore, the only way to balance the equation is to decrease another asset by an equal amount.

Question 15

Robinson starts a plumbing service named Crusoe Waterworks. Transactions of Crusoe Waterworks during the first year of operations are given below:

Accepted Answer

The answer of Robinson starts a plumbing service named Crusoe...

Question 16

Venus Inc. paid $5,000 for account payable. How does this transaction affect the accounting equation of Venus?

Accepted Answer

When Venus Inc. pays $5,000 for an account payable, both sides of the accounting equation are affected. The asset account decreases by $5,000 as cash is paid out, and the liability account also decreases by $5,000 as the debt is settled. Therefore, the accounting equation remains balanced. However, equity does not change in this transaction.

Question 17

Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the accounting equation?

Accepted Answer

The sale of land for cash results in an increase in cash (an asset) by $20,000 and a decrease in land (an asset) by $20,000, leaving the total assets unchanged.

Question 18

Land is purchased by a business for $100,000. The company pays for the land by a cash payment of $20,000 and promised to pay the remaining amount at a later period. What is net effect of this transaction on the business's accounting equation?

Accepted Answer

The land purchase increases assets by $100,000, but since $20,000 is paid in cash, the net increase in assets is $80,000. The remaining $80,000 is a liability, as it is a promise to pay later.

Question 19

The equity of Autumn Company is $150,000 and the total liabilities are $90,000. Its total assets would be:

Accepted Answer

Equity + Liabilities = Total Assets
Substituting given values, we have:
$150,000 + $90,000 = Total Assets
Total Assets = $240,000

Question 20

Star Homes Inc. just recorded a transaction in its books of accounts. If this transaction increased the total liabilities by $7,000:

Accepted Answer

If the total liabilities increased by $7,000, then either the assets would need to increase by $7,000 or the equity would need to decrease by the same amount. This is because assets = liabilities + equity, and any increase on one side of the equation must be matched by an increase on the other side or a decrease on the same side. Therefore, option A is the correct answer. Options B, C, and D are all incorrect because they do not reflect the fact that an increase in liabilities must be accompanied by an increase in assets or a decrease in equity.

Quiz 1: Accounting and the Business Environment