Question 1

McDonagal Inc. sold ordinary shares for £2,200,000. This transaction will increase
A) Cash and increase Retained Earnings by £2,200,000.
B) Cash and increase Share Capital by £2,200,000.
C) Service Revenue and increase Share Capital by £2,200,000.
D) Service Revenue and increase Cash by £2,200,000.

Accepted Answer

When a company sells its ordinary shares, it is increasing its share capital. Therefore, the correct choice is B, as the transaction will increase Cash and increase Share Capital by £2,200,000.

Question 2

Sao Paulo Company performed services on account for R$160,000. This transaction will
A) increase assets and liabilities by R$160,000.
B) increase assets and equity by R$160,000.
C) increase liabilities and equity by R$160,000.
D) have no effect on the accounting equation.

Accepted Answer

When a company performs services on account (i.e. on credit), it increases its accounts receivable (asset) and its revenue (equity) by the same amount. Therefore, the accounting equation is balanced and there is no effect on liabilities. Option A is incorrect because it suggests that both assets and liabilities are affected, which is not the case. Option C is incorrect because it suggests that both liabilities and equity are affected, which is also not the case. Option D is incorrect because it implies that the transaction has no effect, which is certainly not the case.

Question 3

Burgundy Inc. purchased supplies on account for €26,000. This transaction will
A) increase liabilities and decrease equity by €26,000.
B) increase assets and decrease equity by €26,000.
C) increase assets and increase liabilities by €26,000.
D) have no effect on the accounting equation.

Accepted Answer

The purchase of supplies on account for €26,000 increases the assets (supplies) by €26,000 and increases the liabilities (accounts payable) by €26,000. This transaction increases both assets and liabilities, thus increasing both sides of the accounting equation (Assets = Liabilities + Equity) by €26,000. Therefore, the correct answer is C- It increases assets and increases liabilities by €26,000.

Question 4

As of December 31, 2014, Lojas Company reported assets of R$7,400,000, liabilities of R$2,200,000, share capital of R$1,980,000 and retained earnings of R$3,220,000. Total equity reported on the statement of financial position as of that date is
A) R$1,240,000.
B) R$5,200 000.
C) R$5,400 000.
D) R$7,400.000.

Accepted Answer

The answer of As of December 31, 2014, Lojas Company...

Question 5

As of June 30, 2014, Dallas Company has assets of $140,000 and equity of $10,000. What are the liabilities for Dallas Company as of June 30, 2014?
A) $150,000
B) $120,000
C) $130,000
D) $140,000

Accepted Answer

The accounting equation is Assets = Liabilities + Equity. 
Given that the assets are $140,000 and equity is $10,000, we can rearrange the equation to find the liabilities: 
Liabilities = Assets - Equity 
Liabilities = $140,000 - $10,000 
Liabilities = $130,000

Therefore, the correct answer is choice C) $130,000.

Question 6

An investment of cash by an owner of a business increases assets and
A) increases liabilities.
B) increases equity.
C) decreases equity.
D) decreases liabilities.

Accepted Answer

An investment of cash by an owner of a business increases assets and increases equity. This is because cash is an asset, and when the owner invests it into the business, the business's equity increases. There is no change in liabilities as liabilities are debts owed by the business and not affected by the owner's investment of cash.

Question 7

The accounting equation for Gudgeyes Enterprises is as follows: Assets Liabilities Equity
$140,000 = $60,000 + $80,000
If Gudgeyes purchases office equipment on account for $12,000, the accounting equation will change to
Assets Liabilities Equity
A) $140,000 = $60,000 + $80,000
B) $152,000 = $60,000 + $92,000
C) $152,000 = $76,000 + $76,000
D) $152,000 = $72,000 + $80,000

Accepted Answer

When Gudgeyes purchases office equipment on account for $12,000, assets increase by $12,000 and liabilities also increase by $12,000, resulting in the equation $152,000 = $72,000 + $80,000.

Question 8

As of December 31, 2014, Deitrich Inc. had assets of €13,050,000, liabilities of €4,650,000, share capital of ₤3,300,000 and retained earnings of €5,100,000. Total equity as of that date is
A) €3,300,000.
B) €3,750,000.
C) €8,400,000.
D) €13,050,000.

Accepted Answer

Total equity is calculated as the sum of share capital and retained earnings, which is €3,300,000 + €5,100,000 = €8,400,000.

Question 9

On November 4, Vivo Company performed services on account for R$295,000. On November 26, the company collected the balance due. The November 26 transaction will increase
A) Cash and Accounts Payable by R$295,000.
B) Accounts Receivable and Service Revenue by R$295,000
C) Cash and decrease Accounts Receivable by R$295,000
D) Service Revenue and decrease Accounts Receivable by R$295,000.

Accepted Answer

The correct answer is C because when the company collected the balance due, it received cash and decreased the Accounts Receivable. Therefore, choice C is the correct answer. Option A is incorrect because Accounts Payable is not affected by this transaction. Option B is incorrect because service revenue had already been recognized when the services were performed on account, so there is no increase in revenue. Option D is incorrect because the collection of the balance due does not decrease Service Revenue.

Question 10

Freirs Company paid the monthly rent of €6,000. This transaction will
A) increase Cash and decrease Rent Expense by €6,000.
B) decrease Cash and decrease Rent Expense by €6,000.
C) decrease Cash and increase Rent Expense by €6,000.
D) have no effect on the accounting equation.

Accepted Answer

When Freirs Company pays the monthly rent of €6,000, Cash account will be decreased as cash is going out of the company and Rent Expense account will be increased as the company has incurred an expense. Hence, the correct answer is C - decrease Cash and increase Rent Expense by €6,000. This transaction will not have any effect on any other accounts of the company.

Question 11

Bennoit Corporation paid dividends totaling €295,000 to its shareholders. This transaction will decrease assets and
A) decrease equity by €295,000.
B) decrease liabilities by €295,000.
C) increase expenses by €295,000.
D) have no effect on the accounting equation.

Accepted Answer

Paying dividends results in a decrease in retained earnings (a part of equity), which decreases overall equity by the amount of the dividends paid. This is a decrease in the accounting equation, as assets are decreasing while equity is decreasing. Therefore, option A is the correct answer.

Question 12

As of December 31, 2014, Thames Company reported assets of ₤6,480,000, liabilities of ₤1,920,000 and retained earnings of ₤3,315,000. Share capital reported on the December 31, 2014 statement of financial position is
A) ₤1,245,000.
B) ₤1,395,000.
C) ₤5,235,000.
D) ₤9,795,000.

Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' Equity. Shareholders' Equity is the sum of Share Capital and Retained Earnings. Given Assets (₤6,480,000) and Liabilities (₤1,920,000), Shareholders' Equity is ₤4,560,000 (₤6,480,000 - ₤1,920,000). With Retained Earnings of ₤3,315,000, Share Capital is ₤1,245,000 (₤4,560,000 - ₤3,315,000).

Question 13

On January 11, 2014, Britannica Corporation sold ordinary shares to investors for ₤6,550,000. This transaction will increase assets and
A) decrease liabilities by ₤6,550,000.
B) decrease equity by ₤6,550,000.
C) increase revenues by ₤6,550,000.
D) increase equity by ₤6,550,000.

Accepted Answer

The sale of ordinary shares represents an increase in equity, specifically in the form of contributed capital. Therefore, option D is correct. The sale of shares does not affect liabilities or revenues, so options A and C are incorrect. Option B is also incorrect because the sale of shares actually increases equity, rather than decreasing it.

Question 14

Gafisa Inc. performed services for R$195,000. The company collected R$65,000 in cash. The balance will be collected in 30 days. Performing services for R$195,000 will increase
A) assets by R$65,000 and equity by R$130,000.
B) assets by R$65,000, liablities by R$130,000 and equity by R$195,000.
C) liabilites and equity by R$195,000.
D) assets and equity by R$195,000.

Accepted Answer

Performing services for R$195,000 increases assets by R$65,000 in cash and R$130,000 in accounts receivable, totaling R$195,000. Equity also increases by R$195,000 due to the revenue earned.

Question 15

The purchase of supplies on account increases assets and
A) also decreases assets so there is no net change.
B) increases liabilities.
C) decreases equity.
D) increases equity.

Accepted Answer

When supplies are purchased on account, it means that it is bought on credit, resulting in an increase in liabilities. Therefore, option B is the correct choice. The transaction does not have any effect on equity, and there is no decrease in assets associated with it.

Question 16

A payment on account decreases
A) assets and equity.
B) liabilities and equity.
C) assets and liabilities.
D) assets, liabilities and equity.

Accepted Answer

A payment on account decreases assets (cash) and liabilities (accounts payable) as it reduces the amount owed.

Question 17

As of December 31, 2014, Oxford-welsh Inc. had assets of ₤6,520,000, liabilities of ₤1,980,000, and share capital of ₤2,820,000. Retained earnings as of that date are
A) ₤1,720,000.
B) ₤3,700,000.
C) ₤4,540,000.
D) ₤6,520,000.

Accepted Answer

Retained earnings can be calculated using the accounting equation: Assets = Liabilities + Shareholders' Equity. Shareholders' Equity is the sum of share capital and retained earnings. Therefore, Retained Earnings = Assets - Liabilities - Share Capital = ₤6,520,000 - ₤1,980,000 - ₤2,820,000 = ₤1,720,000.

Question 18

On February 1, Potter Company paid £900 for advertisements to run during the month of February. This transaction will
A) decrease Cash and increase Advertising Expense by £900.
B) increase Advertising Expense and increase Accounts Payable by £900.
C) decrease Accounts Payable and decrease Cash by £900.
D) decrease Cash and decrease Advertising Expense by £900.

Accepted Answer

The payment of £900 for advertisements is an expense for the company and will decrease the cash balance. Therefore, option A is the correct answer. Option B is incorrect because advertising expenses are not recorded in accounts payable. Option C is incorrect because the payment of £900 will decrease accounts payable, not increase it. Option D is incorrect because the payment of £900 for advertisements is an expense for the company and will reduce the advertising expense balance.

Question 19

Vita Corporation performed services on account for €22,000. This transaction will
A) increase Cash and increase Service Revenue by €22,000.
B) increase Accounts Receivable and increase Service Revenue by €22,000.
C) decrease Accounts Payable and increase Cash by €22,000.
D) increase Cash and decrease Accounts Receivable by €22,000.

Accepted Answer

Performing services on account means that the company provided services to a customer who has not yet paid. Therefore, this transaction would increase the company's Accounts Receivable (as they are owed money) and also increase Service Revenue (as they earned revenue from providing the services).

Question 20

On June 6, Wing Wah Inc. purchased supplies on account for HK$60,000. On June 30, the company paid half of the balance due. The June 30 payment will
A) decrease Cash and increase Supplies Expense by HK$ 60,000.
B) increase Cash and decrease Accounts Receivable by HK$30,000.
C) decrease Cash and decrease Accounts Payable by HK$30,000.
D) decrease Supplies and increase Supplies Expense by HK$30,000.

Accepted Answer

When Wing Wah Inc. purchased supplies on account for HK$60,000, it created an account payable (liability) of HK$60,000. When the company paid half of the balance due on June 30, it decreased its cash account (asset) by HK$30,000 and decreased the accounts payable (liability) by HK$30,000. Therefore, option C is the correct choice.

Quiz 1: Accounting in Action

McDonagal Inc. sold ordinary shares for £2,200,000. This transaction will increase

Sao Paulo Company performed services on account for R$160,000. This transaction will

Burgundy Inc. purchased supplies on account for €26,000. This transaction will

As of December 31, 2014, Lojas Company reported assets of R$7,400,000, liabilities of R$2,200,000, share capital of R$1,980,000 and retained earnings of R$3,220,000. Total equity reported on the statement of financial position as of that date is

As of June 30, 2014, Dallas Company has assets of $140,000 and equity of $10,000. What are the liabilities for Dallas Company as of June 30, 2014?

An investment of cash by an owner of a business increases assets and

The accounting equation for Gudgeyes Enterprises is as follows: Assets Liabilities Equity $140,000 = $60,000 + $80,000 If Gudgeyes purchases office equipment on account for $12,000, the accounting equation will change to Assets Liabilities Equity

As of December 31, 2014, Deitrich Inc. had assets of €13,050,000, liabilities of €4,650,000, share capital of ₤3,300,000 and retained earnings of €5,100,000. Total equity as of that date is

On November 4, Vivo Company performed services on account for R$295,000. On November 26, the company collected the balance due. The November 26 transaction will increase

Freirs Company paid the monthly rent of €6,000. This transaction will

Bennoit Corporation paid dividends totaling €295,000 to its shareholders. This transaction will decrease assets and

As of December 31, 2014, Thames Company reported assets of ₤6,480,000, liabilities of ₤1,920,000 and retained earnings of ₤3,315,000. Share capital reported on the December 31, 2014 statement of financial position is

On January 11, 2014, Britannica Corporation sold ordinary shares to investors for ₤6,550,000. This transaction will increase assets and

Gafisa Inc. performed services for R$195,000. The company collected R$65,000 in cash. The balance will be collected in 30 days. Performing services for R$195,000 will increase

The purchase of supplies on account increases assets and

A payment on account decreases

As of December 31, 2014, Oxford-welsh Inc. had assets of ₤6,520,000, liabilities of ₤1,980,000, and share capital of ₤2,820,000. Retained earnings as of that date are

On February 1, Potter Company paid £900 for advertisements to run during the month of February. This transaction will

Vita Corporation performed services on account for €22,000. This transaction will

On June 6, Wing Wah Inc. purchased supplies on account for HK$60,000. On June 30, the company paid half of the balance due. The June 30 payment will