Question 1

Adventures Unlimited Company distributes cash dividends. How does this transaction affect the accounting equation?
A) The assets, liabilities, and equity remain the same.
B) The assets decrease and equity decreases.
C) The assets increase and liabilities decrease.
D) The assets decrease and equity increases.

Accepted Answer

Distributing cash dividends results in a decrease in assets (cash) and a decrease in equity (retained earnings), as dividends are a distribution of earnings to shareholders.

Question 2

Westwood 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?
A) Cash
B) Revenue
C) Accounts Payable
D) Accounts Receivable

Accepted Answer

Accounts Receivable will decrease as the customer has paid the amount owed from the previous month.

Question 3

Jackson Electric Services incurred $800 as a repair expense and paid for it in cash. This transaction will ________.
A) decrease the stockholders' equity
B) increase the assets of the business
C) increase the liabilities of the business
D) decrease the liabilities of the business

Accepted Answer

Paying for a repair expense in cash decreases the company's cash asset (an asset decrease) and also decreases stockholders' equity because expenses reduce net income, which in turn reduces retained earnings, a component of stockholders' equity. There is no increase in assets or liabilities, and liabilities are not directly affected by this transaction.

Question 4

Gena's Cleaning Services performs services for its customers during March. Payments for the March services are received in June. How does the transaction for the collection of cash from customers affect the accounting equation of Gena's Cleaning Services?
A) Liabilities increase and assets increase.
B) Total assets remain the same.
C) Assets increase and revenues increase.
D) Assets increase and equity decreases.

Accepted Answer

The collection of cash from customers increases cash (an asset) and decreases accounts receivable (another asset), resulting in no net change in total assets.

Question 5

Mitchell Company receives a bill from one of its suppliers for advertising services received and will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of Mitchell?
A) Assets and equity decrease.
B) Liabilities increase and equity decreases.
C) Assets and liabilities increase.
D) Liabilities and equity increase.

Accepted Answer

The receipt of the bill from the supplier represents an increase in liabilities (amount owed to the supplier), which results in a decrease in equity (as the company now owes more to its suppliers). Therefore, the accounting equation is affected by an increase in liabilities and a decrease in equity.

Question 6

An accounting firm collected cash on account. As a result of this transaction, assets and revenues increase.

Accepted Answer

Collecting cash on account increases one asset (cash) while decreasing another asset (accounts receivable), with no effect on revenues since the revenue was recognized when the service was performed or the sale was made, not when the cash was collected.

Question 7

An accounting firm collected cash on account. As a result of this transaction, total assets, liabilities, and equity are all unchanged.

Accepted Answer

When cash is collected on account, an increase in cash is offset by a decrease in accounts receivable (an asset account) so that the total assets remain unchanged. There is no impact on liabilities or equity.

Question 8

Diamond, Inc. had the following transactions during June: Performed services for $2,000 on account; received cash on account, $8,000; paid $700 for repair expense; paid $1,800 to a supplier that it owed from the previous month. What is the combined effect on Cash of these June transactions?
A) $5,500 increase
B) $5,500 decrease
C) $8,000 increase
D) $2,500 decrease

Accepted Answer

The combined effect on Cash from these transactions is calculated as follows: +$2,000 (services performed on account does not affect cash) +$8,000 (cash received) -$700 (repair expense paid) -$1,800 (paid to supplier) = +$5,500. Therefore, there is a $5,500 increase in Cash.

Question 9

Lamar Corporation originally purchased land for $20,000. It later sold the land for $20,000 in cash. Which of the following is true of the effect of the sale of land on the accounting equation?
A) Assets increase and liabilities decrease by $20,000.
B) Assets and equity increase by $40,000.
C) Assets increase by $20,000; equity increases by $20,000.
D) The amount of total assets remains the same.

Accepted Answer

The sale of land has no effect on the accounting equation since both the assets and equity decrease by an equal amount of $20,000. Therefore, the amount of total assets remains the same.

Question 10

Jones Supply Services paid $350 cash, the amount owed from the previous month, to a materials supplier. Which of the following accounts decrease?
A) Accounts Receivable
B) Accounts Payable
C) Retained Earnings
D) Office Supplies

Accepted Answer

Accounts Payable is the account that decreases when a company pays money to a supplier for outstanding debts. The other options are not relevant to this transaction.

Question 11

Brooks Landscaping Corporation performs lawn mowing services for its customers in May. Payments for May's services are expected to be received in June. How does the transaction for performing services in May affect the accounting equation of Brooks Landscaping?
A) Liabilities increase and equity decreases.
B) Assets and equity increase.
C) Assets and equity decrease.
D) Liabilities and equity increase.

Accepted Answer

Performing lawn mowing services in May will increase the amount of money that Brooks Landscaping Corporation is owed by its customers (accounts receivable), which is an asset. At the same time, revenue will be recognized, which increases equity. Therefore, assets and equity increase.

Question 12

Jason Repair Corporation incurred $1,500 as advertising expense and promised to pay the advertising agency within 30 days. Which of the following will decrease as a result of this transaction?
A) Assets
B) Stockholders' equity
C) Liabilities
D) Revenues

Accepted Answer

Stockholders' equity decreases because the expense reduces net income, which in turn reduces retained earnings, a component of stockholders' equity.

Question 13

Montgomery Equipment Rental Company 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?
A) Accounts Receivable increases and Service Revenue increases.
B) Cash increases and Accounts Receivable decreases.
C) Cash increases and Service Revenue increases.
D) Cash increases and Accounts Payable decreases.

Accepted Answer

This transaction results in an increase in cash because the company received $1,000 in cash. It also results in a decrease in accounts receivable since the customer paid the amount owed from the previous month. Therefore, the accounting equation would be affected by an increase in Cash on the left side and a decrease in Accounts Receivable on the right side, leading to a balanced equation.

Question 14

Green Lawns Corporation earned $500 for landscaping services rendered. The customer promised to pay at a later time. Which of the following accounts increased as a result of this transaction?
A) Accounts Payable
B) Supplies
C) Cash
D) Accounts Receivable

Accepted Answer

The transaction represents the creation of an accounts receivable, which is the amount owed to the company by the customer for services rendered. The other options do not apply because cash has not been received, supplies have not been purchased, and the company does not owe any payments to a creditor.

Question 15

Mars Electronic Company receives cash from a stockholder, John Tilden, and issues common stock to him. The two accounts involved in this transaction are ________.
A) Accounts Payable and Cash
B) Cash and Common Stock
C) Common Stock and Accounts Payable
D) Common Stock and Accounts Receivable

Accepted Answer

When a company receives cash from a stockholder and issues common stock to them, the accounts involved are Cash (which is increasing as cash is received) and Common Stock (which is increasing as stock is issued). Therefore, the best choice is B, Cash and Common Stock.

Question 16

Saturn, Inc. paid $13,000 on accounts payable. How does this transaction affect the accounting equation of Saturn?
A) Assets decrease by $13,000 and equity increases by $13,000.
B) Assets decrease by $13,000 and liabilities decrease by $13,000.
C) Assets increase by $13,000 and equity decreases by $13,000.
D) Assets increase by $13,000 and liabilities increase by $13,000.

Accepted Answer

When Saturn, Inc. pays $13,000 on accounts payable, it decreases its liabilities by $13,000. This would be reflected in the accounting equation as a decrease in liabilities and no change to assets or equity. Therefore, the best choice is B, where assets decrease by $13,000 and liabilities decrease by $13,000.

Question 17

Newton Corporation settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business?
A) Assets and liabilities decrease.
B) Liabilities decrease and equity increases.
C) Assets and liabilities increase.
D) Assets increase and equity decreases.

Accepted Answer

Paying a liability with cash decreases the company's assets (cash) and also decreases its liabilities, maintaining the balance in the accounting equation.

Question 18

Mulberry Corporation collected $16,000 from one of its customers, the amount owed from the previous month. How does this affect the accounting equation for Mulberry?
A) Assets increase by $16,000; liabilities decrease by $16,000.
B) Assets increase by $16,000; assets decrease by $16,000.
C) Assets increase by $16,000; liabilities increase by $16,000.
D) Assets increase by $16,000; equity increases by $16,000.

Accepted Answer

When Mulberry Corporation collects $16,000 from a customer, its cash (an asset) increases by $16,000. However, its accounts receivable (also an asset) decreases by $16,000 because the customer's debt is settled. There's no change in liabilities or equity; it's merely an asset exchange within the accounting equation.

Question 19

Nick's Landscaping Services incurred $500 as a repair expense and promised to pay the repair company within 30 days. Which of the following accounts will increase as a result of this transaction?
A) Accounts Receivable
B) Cash
C) Accounts Payable
D) Retained Earnings

Accepted Answer

The correct answer is C) Accounts Payable. This account increases because when Nick's Landscaping Services incurs a repair expense and promises to pay within 30 days, it is essentially creating a liability or an obligation to pay in the future, which is recorded under Accounts Payable.

Question 20

Rosewood Corporation purchased land for $100,000 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 Rosewood's accounting equation?
A) Assets increase by $100,000 and liabilities decrease by $38,000.
B) Assets increase by $100,000 and liabilities decrease by $62,000.
C) Assets and equity increase by $62,000.
D) Assets and liabilities increase by $62,000.

Accepted Answer

The land purchase increases assets (land) by $100,000. The cash payment decreases another asset (cash) by $38,000, resulting in a net asset increase of $62,000. The promise to pay the remaining amount increases liabilities by $62,000, with no effect on equity in this transaction.

Quiz 1: Accounting and the Business Environment

Adventures Unlimited Company distributes cash dividends. How does this transaction affect the accounting equation?

Westwood 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?

Jackson Electric Services incurred $800 as a repair expense and paid for it in cash. This transaction will ________.

Gena's Cleaning Services performs services for its customers during March. Payments for the March services are received in June. How does the transaction for the collection of cash from customers affect the accounting equation of Gena's Cleaning Services?

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

An accounting firm collected cash on account. As a result of this transaction, assets and revenues increase.

An accounting firm collected cash on account. As a result of this transaction, total assets, liabilities, and equity are all unchanged.

Diamond, Inc. had the following transactions during June: Performed services for $2,000 on account; received cash on account, $8,000; paid $700 for repair expense; paid $1,800 to a supplier that it owed from the previous month. What is the combined effect on Cash of these June transactions?

Lamar Corporation originally purchased land for $20,000. It later sold the land for $20,000 in cash. Which of the following is true of the effect of the sale of land on the accounting equation?

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

Brooks Landscaping Corporation performs lawn mowing services for its customers in May. Payments for May's services are expected to be received in June. How does the transaction for performing services in May affect the accounting equation of Brooks Landscaping?

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

Montgomery Equipment Rental Company 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?

Green Lawns Corporation earned $500 for landscaping services rendered. The customer promised to pay at a later time. Which of the following accounts increased as a result of this transaction?

Mars Electronic Company receives cash from a stockholder, John Tilden, and issues common stock to him. The two accounts involved in this transaction are ________.

Saturn, Inc. paid $13,000 on accounts payable. How does this transaction affect the accounting equation of Saturn?

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

Mulberry Corporation collected $16,000 from one of its customers, the amount owed from the previous month. How does this affect the accounting equation for Mulberry?

Nick's Landscaping Services incurred $500 as a repair expense and promised to pay the repair company within 30 days. Which of the following accounts will increase as a result of this transaction?

Rosewood Corporation purchased land for $100,000 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 Rosewood's accounting equation?