Question 1

The rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and activities of a business are

Accepted Answer

The rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and activities of a business are both broad and specific principles, known as generally accepted accounting principles (GAAP), and are intended to make information in financial statements relevant and faithfully represented. Therefore, all of these choices are correct.

Question 2

Which of the following business transactions would increase the equity of ABC Limited?

Accepted Answer

Billing a customer for services provided increases the revenue and therefore increases the equity of the company. A, B, C, and E are all transactions that do not directly impact the equity of the company.

Question 3

From the following information taken from the records of Peach Company at December 31 of this year, calculate equity.

Accepted Answer

Equity is calculated as follows: 
Common stock: $2,500 
Retained earnings: $5,000 
Total equity: $7,500

Question 4

The assets of a business total $20,000; the liabilities, $8,000. The claims of the owners are

Accepted Answer

The claims of the owners can be calculated using the equation: Assets = Liabilities + Owner's Equity. Rearranging this equation, we get Owner's Equity = Assets - Liabilities. Substituting the given values, we get Owner's Equity = $20,000 - $8,000 = $12,000. Therefore, the correct choice is C.

Question 5

An exchange between two parties of economic consideration such as goods, services, money, or rights to collect money is called

Accepted Answer

A business transaction involves an exchange between two parties of economic consideration such as goods, services, money, or rights to collect money. The other options are not relevant to a transaction.

Question 6

Under which one of the following situations can a company recognize revenue under Generally Accepted Accounting Principles?

Accepted Answer

Revenue recognition under Generally Accepted Accounting Principles (GAAP) occurs when the performance obligation is satisfied, which typically is when goods or services are transferred to the customer. In option C, shipping the goods indicates that the company has fulfilled its performance obligation, allowing it to recognize revenue.

Question 7

If a parcel of land is offered for sale at $45,000, is assessed for tax purposes at $20,000, is considered by its purchasers to be worth $36,000, and is purchased for $34,000, the land should be recorded in the purchaser's books at

Accepted Answer

The land should be recorded at the purchase price of $34,000, as this is the amount actually paid for the land. The assessed value for tax purposes and the opinion of the purchasers as to the value of the land are not relevant for recording the purchase in the purchaser's books. The asking price of $45,000 does not represent the actual value of the land since it was purchased for $34,000, and should not be used for recording purposes.

Question 8

If assets are $175,000 and equity is $47,000, then liabilities equal

Accepted Answer

The formula for the accounting equation is Assets = Liabilities + Equity. Therefore, Liabilities = Assets - Equity. Plugging in the given numbers, Liabilities = $175,000 - $47,000 = $128,000.

Question 9

The purchase of supplies for cash impacts both the investing and financing sides of the accounting equation.

Accepted Answer

The purchase of supplies for cash only impacts the asset side (specifically, the cash account) of the accounting equation, and does not affect either the investing or financing sides.

Question 10

If assets are $144,000 and liabilities are $37,000, then equity equals

Accepted Answer

Equity is equal to assets minus liabilities:
Equity = Assets - Liabilities
Equity = $144,000 - $37,000
Equity = $107,000

Question 11

Payment of accounts payable decreases both liabilities and assets.

Accepted Answer

When accounts payable are paid, they are no longer considered a liability as they have been settled. At the same time, the cash or other asset used to pay the accounts payable is reduced, resulting in a decrease in assets.

Question 12

Items such as sales slips, invoices, cheques, purchase orders, and employee earnings records are also called source documents.

Accepted Answer

This is true. Source documents are typically used as evidence of transactions and provide supporting documentation for accounting entries. Examples of source documents include sales slips, invoices, cheques, purchase orders, and employee earnings records.

Question 13

The following information is available for Isla Company for the month of May. How much is the profit for the month?

Accepted Answer

The profit for the month can be calculated as follows: 
Revenue - Cost of Goods Sold - Operating Expenses = Profit

Revenue = $90,000
Cost of Goods Sold = $20,000
Operating Expenses = $50,000
Profit = $90,000 - $20,000 - $50,000 = $20,000

Question 14

At the end of its first year of operations, Lockerbie and Role Company has total assets of $3,000,000 and total liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further investments or taken any withdrawals. What is the first year's profit for Lockerbie and Role Company?

Accepted Answer

The profit can be calculated using the accounting equation: Assets = Liabilities + Owner's Equity. Owner's Equity = Assets - Liabilities = $3,000,000 - $1,200,000 = $1,800,000. Since the owner originally invested $200,000, the profit is $1,800,000 - $200,000 = $1,600,000.

Question 15

Business transactions are exchanges of economic consideration between two parties.

Accepted Answer

Business transactions involve the exchange of economic value or consideration between two parties, such as money, goods, or services.

Question 16

Reese's Company reported equity of $22,000 on its December 31, 2019 balance sheet. The following information is available for the year ended December 31, 2020  What are the total assets of Reese's Company on December 31, 2020?

Accepted Answer

In order to determine the total assets of the company, we need to use the basic accounting equation:

Assets = Liabilities + Equity

We know that equity at the end of 2019 was $22,000. During the year ended December 31, 2020, the company had net income of $15,000, paid dividends of $5,000, and issued $5,000 of common stock.

Therefore, equity at the end of 2020 is:

$22,000 + $15,000 - $5,000 + $5,000 = $37,000

Now, we can use the accounting equation to solve for assets:

Assets = Liabilities + Equity

We don't have any information about liabilities, but we know that equity at the end of 2020 is $37,000.

Therefore, Assets = $37,000 + Liabilities

We don't know the exact amount of liabilities, but we do know that:

Assets + Liabilities = Equity 
$47,000 + Liabilities = $37,000

So, Liabilities = $10,000

Now we can use the accounting equation to solve for assets:

Assets = Liabilities + Equity 
Assets = $10,000 + $37,000 
Assets = $47,000

Question 17

Business events do not affect the accounting equation.

Accepted Answer

Business events affect the accounting equation by changing the values of assets, liabilities, and equity.

Question 18

The FastForward Company balance sheet shows cash $5,000, accounts receivable $7,000, office equipment $3,000, and accounts payable $4,000. What is the amount of equity?

Accepted Answer

Equity is calculated as total assets minus total liabilities. Total assets are $5,000 (cash) + $7,000 (accounts receivable) + $3,000 (office equipment) = $15,000. Total liabilities are $4,000 (accounts payable). Therefore, equity is $15,000 - $4,000 = $11,000.

Question 19

Willie's Attic has the following account balances for the dates given  What is the amount of equity on September 1 and September 30?

Accepted Answer

The answer of Willie's Attic has the following account balances...

Question 20

If equity is $30,000 and liabilities are $73,000, then assets equal

Accepted Answer

To calculate assets, we use the accounting equation: Assets = Liabilities + Equity. Therefore, Assets = $73,000 (liabilities) + $30,000 (equity) = $103,000.

Quiz 1: Accounting in Business