Question 1

Crusoe Waterworks Company provides plumbing services. Transactions of Crusoe Waterworks during the first year of operations are given below. a) The owner, Robin Crusoe, invested $5,000 cash in the company. The cash was deposited in the business checking account.
b) Paid $4,000 cash for equipment to be used for plumbing repairs.
c) Borrowed $26,000 from a local bank and deposited the money in the checking account.
d) Paid $700 rent for the year.
e) Purchased $1,500 of office supplies on account.
f) Completed a plumbing repair project for a local lawyer and received $3,400 cash.
Calculate the amount of total owner's equity after recording the transactions. Assume office supplies of $1,500 are left at the end of the year.

Accepted Answer

Owner's equity is calculated as initial investment plus net income. Initial investment is $5,000. Net income is revenue ($3,400) minus expenses ($700 rent), which equals $2,700. Total owner's equity is $5,000 + $2,700 = $7,700.

Question 2

Star Homes Company just recorded a transaction in its books. If this transaction increased the total liabilities by $10,000, then ________.

Accepted Answer

In accounting, the fundamental accounting equation is Assets = Liabilities + Equity. Therefore, if liabilities increase by $10,000, either assets must increase or equity must decrease by the same amount in order to keep the equation in balance. Option A is the correct answer because it reflects this relationship.

Question 3

Glendale Company had the following transactions in August: Earned $5,000 of revenues on account; collected $2,000 from a customer for services provided last month; incurred $500 of repair expense and paid cash; paid $300 for rent that it owed from the previous month.
What is the net income in August?

Accepted Answer

- Revenues earned on account: $5,000
- Collection from customer for services provided last month: + $2,000
- Repair expense paid in cash: - $500
- Rent paid from previous month: - $300
Net income = $5,000 + $2,000 - $500 - $300 = $4,500. Therefore, the correct choice is D.

Question 4

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

Accepted Answer

When Venus, Inc. pays $5,000 on accounts payable, it reduces their liability (accounts payable) by $5,000. As a result, assets decrease by $5,000 (since cash is used to make the payment) and liabilities decrease by $5,000 (since accounts payable is a liability). This transaction does not affect equity. Therefore, the correct answer is B.

Question 5

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

Accepted Answer

According to the accounting equation (Assets = Liabilities + Equity), if an asset increases, then either a liability or equity must also increase to balance the equation. Therefore, there cannot be a decrease in equity or liability. Option A is correct because the increase in one asset is balanced by a decrease in another asset to keep the equation in balance.

Question 6

Wallace Repair Company incurred $1,500 as a labor expense and promised to pay the labor agency within 30 days. Which of the following will decrease as a result of this transaction?

Accepted Answer

The answer of Wallace Repair Company incurred $1,500 as a...

Question 7

Murphy Company had originally purchased land for $35,000. It later sold it for $35,000 in cash. Which of the following is true of the effect of the sale of land on the accounting equation?

Accepted Answer

The sale of land only involves a cash transaction and does not affect any other accounts. Therefore, the amount of total assets (cash) remains the same and there is no impact on the accounting equation.

Question 8

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

Accepted Answer

The answer of Bliss Company settles a liability by making...

Question 9

Myers Landscaping Company performs lawn mowing services for its customers. Payments for the current month's services are expected to be received next month. How does this transaction affect the accounting equation of Myers Landscaping?

Accepted Answer

The transaction represents an increase in revenue (equity) for Myers Landscaping, and therefore, assets and equity increase. There is no change in liabilities.

Question 10

Homeward Supply Services received $1,000 cash from a customer; the amount was owed to the business from the previous month. Which of the following accounts will decrease as a result of this transaction?

Accepted Answer

Accounts Receivable will decrease as the $1,000 cash received is owed by the customer from the previous month.

Question 11

Exchange Company collected $14,000 from one of its customers, the amount owed from the previous month. How does this affect the accounting equation for Exchange?

Accepted Answer

The answer of Exchange Company collected $14,000 from one of...

Question 12

Ace, Inc. had the following transactions during June: Performed services for $4,000 on account; received cash on account, $8,000; paid $900 for repair expense; paid $1,800 to a supplier that it owed from the previous month. What is the combined effect on Cash of the June transactions?

Accepted Answer

A)Cash = $8,000 - $900 - $1,800 = $5,300 increase

Question 13

Accord Company purchased land for $120,000 by making a cash payment of $38,000 and promising to pay the remaining amount in a later accounting period. What is the net effect of this transaction on Accord's accounting equation?

Accepted Answer

The answer of Accord Company purchased land for $120,000 by...

Question 14

Merchant Company provides plumbing services. Transactions of Merchant during the first year of operations are given below. a) The owner, Carol Merchant, contributed $10,000 cash to form the business.
b) Paid $1,200 cash for equipment to be used for plumbing repairs.
c) Borrowed $11,000 from a local bank and deposited the money in the checking account.
d) Paid $400 rent for the year.
e) Purchased $400 of office supplies by cash.
f) Completed a plumbing repair project for a local lawyer and received $3,300 cash.
Calculate the amount of total liabilities at the end of the first year.

Accepted Answer

The only liability transaction is the borrowing of $11,000 from a local bank. All other transactions either involve equity or expenses, not liabilities.

Question 15

Fitch Supply Services received $1,000 cash from a customer; the amount was owed to the business from the previous month. What is the effect of this transaction on the accounting equation?

Accepted Answer

When Fitch Supply Services received $1,000 cash, their Cash account increases by $1,000. Additionally, the customer paid for an amount that was previously owed, so Fitch's Accounts Receivable account decreases by $1,000 in the asset section of the accounting equation. Therefore, the effect on the accounting equation is that Assets increase (Cash) and Assets decrease (Accounts Receivable), resulting in no net impact on the equation. The other choices are incorrect because they do not reflect the actual accounts impacted by the transaction.

Question 16

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

Accepted Answer

When Zetom receives a bill from a supplier, it has an obligation to pay for services received. This increases the company's liabilities (accounts payable). At the same time, there is no impact on assets, since the services have already been received but not paid for yet. As a result, equity decreases, since liabilities have increased but there is no corresponding increase in assets.

Question 17

Marsh Supply Services paid $350 cash to a materials supplier, the amount owed from the previous month. Which of the following accounts decreases?

Accepted Answer

Accounts Payable decreases when paying off a balance owed to a supplier. Accounts Receivable is for money owed to the company, Owner's Capital is related to the owner's investment in the business, and Office Supplies is a different type of asset account that is not affected by this transaction.

Question 18

________ represent the right to receive cash in the future from customers for goods sold or for services performed.

Accepted Answer

Accounts Receivable represent the right to receive cash in the future from customers for goods sold or for services performed. Accounts Payable represent the obligation to pay cash in the future for goods or services received. Equity represents the residual interest in the assets of an entity after deducting liabilities. Expenses represent a decrease in equity resulting from the cost of goods or services used in the production of revenue.

Question 19

Reliable Waterworks provides plumbing services. Transactions of Reliable Waterworks during the first year of operations are given below. a) The owner, Steve Sharon, contributed $11,000 cash to form the business.
b) Paid $1,400 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 $100 in rent for the year.
e) Paid $400 for plumbing supplies to be used on various jobs next year.
f) Completed a plumbing repair for a law firm and received $3,200.
Calculate the amount of total assets at the end of the first year. Assume the plumbing supplies of $3,200 are left at the end of the year.

Accepted Answer

Total assets are calculated as follows: Initial cash contribution ($11,000) + Equipment ($1,400) + Loan ($15,000) + Cash from repair ($3,200) - Rent ($100) - Supplies ($400) = $29,100.

Question 20

________ represents a short-term liability created by purchasing "on account."

Accepted Answer

Accounts Payable represents a short-term liability created by purchasing "on account." This means that a company has purchased goods or services but has not yet paid for them. Accounts Payable is typically paid within a few weeks or months of the initial purchase.

Quiz 1: Accounting and the Business Environment