Question 1

Following is a list of account balances (except for owner's capital)of Wilson Mowing Service as of December 31 of the first year of operation:  The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year: during the year, the proprietor took $12,000 in drawings.
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 2

The assets and liabilities of Matt Wesley Auto Shop are as follows: Cash, $10,000; Accounts receivable, $8,200; Supplies, $1,050; Land, $25,000; Accounts payable, $6,530. What is the amount of owner's equity?

Accepted Answer

Owner's equity is calculated by subtracting liabilities from assets.

Assets: 
Cash = $10,000 
Accounts receivable = $8,200 
Supplies = $1,050 
Land = $25,000 
Total assets = $44,250

Liabilities: 
Accounts payable = $6,530

Owner's equity = Total assets - Liabilities 
Owner's equity = $44,250 - $6,530 
Owner's equity = $37,720

Therefore, the answer is choice D, $37,720.

Question 3

Scott's Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no capital contributions during the year, but did make withdrawals of $60,000. What is the amount of Scott's net income for the year?

Accepted Answer

A) Calculations: $120,000 - $70,000 = $50,000

Question 4

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

Accepted Answer

When a business pays off a liability with cash, its assets (cash) decrease because money is going out, and its liabilities decrease because the business is settling a debt it owed.

Question 5

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 at its original purchase price results in an increase in cash (an asset) and a decrease in land (another asset) by the same amount, leaving the overall accounting equation unchanged.

Question 6

Net income is $29,000. Beginning capital balance was $34,000. Ending capital balance was $55,000. No capital contributions were made by the owner during the year. What amount of drawings was made?

Accepted Answer

B) Calculations: $34,000 + $39,000 - $55,000 = $8,000

Question 7

Following is a list of account balances (except for owner's capital)of Wilson Mowing Service as of December 31 of the first year of operation:  The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year; during the year, the proprietor made $12,000 in drawings.
At the end of the year, what is the amount of total owner's equity?

Accepted Answer

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

Question 8

A business receives a bill for services rendered from one of its suppliers. The business will pay the supplier next month. When the business receives the bill from its supplier, how does this affect the accounting equation?

Accepted Answer

When the business receives the bill from its supplier, it incurs a liability (accounts payable). This increases the liabilities of the business. On the other hand, there is no change in assets as no payment has been made yet. Owner's equity remains the same as there is no change in the business's net worth. Therefore, the correct option is B: Liabilities increase; owner's equity decreases.

Question 9

Total liabilities increase by $7,000. How is the accounting equation affected?

Accepted Answer

According to the accounting equation (Assets = Liabilities + Owner's Equity), if liabilities increase by $7,000, then either assets must have increased by $7,000, or owner's equity must have decreased by $7,000 to maintain balance. Therefore, the correct answer is A.

Question 10

The business receives cash from a customer that is owed to the company "on account," based on services rendered to the customer previously. How does the collection of the cash affect the accounting equation?

Accepted Answer

When a business receives cash from a customer on account, one asset (cash) increases, while another asset (accounts receivable) decreases, leaving the overall accounting equation unchanged.

Question 11

A business performs services for its customers. Payment is expected to be received next month. How does the performance of services affect the accounting equation?

Accepted Answer

When a business performs services for its customers, it earns revenue, which increases the assets of the business (through accounts receivable) and also increases the owner's equity (through retained earnings). Therefore, the accounting equation would be affected by an increase in both assets and owner's equity.

Question 12

A proprietor makes a cash withdrawal from the proprietorship. How does this affect the accounting equation?

Accepted Answer

A cash withdrawal from the proprietorship would decrease the assets (cash) and decrease the owner's equity, as the proprietor is taking money out of the business. This is reflected in the accounting equation as follows: 
Assets - Liabilities = Owner's Equity 
If the proprietor withdraws cash, the assets decrease and therefore so does owner's equity.

Question 13

An individual asset has increased. Which of the following is possible?

Accepted Answer

When one asset increases, it is possible for another asset to decrease by an equal amount as part of a transaction. This is known as an exchange and does not affect liabilities or owner's equity. Options B, C, and D suggest that the increase in one asset leads to a decrease in either owner's equity or a liability account, which is not necessarily true.

Question 14

Land is purchased by the business for $100,000. The company pays for land with a $20,000 cash payment and the execution of an $80,000 promissory note payable to the seller. How does this purchase affect the business's accounting equation?

Accepted Answer

The purchase of land increases assets by $100,000 (the value of the land), not $80,000. However, since $20,000 is paid in cash (reducing assets) and $80,000 is through a promissory note (increasing liabilities), the net effect is an increase in assets by $80,000 (the land's net addition after cash payment) and an increase in liabilities by $80,000 (the promissory note). The explanation mistakenly focuses on the net effect on assets after the cash payment but correctly identifies the increase in liabilities due to the promissory note.

Question 15

Scott's Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no capital contributions during the year, but did make withdrawals of $60,000. What is the amount of Scott's owner's equity at the end of the year?

Accepted Answer

C) Calculations: $80,000 - $40,000 = $40,000 +$120,000 - $70,000 - $60,000 = $30,000

Question 16

The business collects a $5,000 account receivable from its customer. How is the accounting equation affected?

Accepted Answer

When a business collects an account receivable, its cash (an asset) increases by the amount collected, while its accounts receivable (another asset) decreases by the same amount. There is no impact on liabilities or owner's equity in this transaction.

Question 17

Equipment is sold for cash in an amount equal to the cost of the equipment recorded on the books. How does this sale affect the accounting equation?

Accepted Answer

The sale of equipment for cash increases the asset Cash and decreases the asset Equipment, resulting in a decrease in total assets. Therefore, the accounting equation is affected by a decrease in assets on both sides while the liabilities and owner's equity remain unaffected by the transaction.

Question 18

Scott's Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no capital contributions during the year, but did make withdrawals of $60,000. The net change in Scott's owner's equity for the year is a:

Accepted Answer

A) Calculations: $120,000 - $70,000 - $60,000 = ($10,000)

Question 19

Following is a list of account balances (except for owner's capital)of Wilson Mowing Service as of December 31 of the first year of operation:  The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year; during the year, the proprietor took $12,000 in drawings.
At the end of the year, what is net income?

Accepted Answer

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

Question 20

Following is a list of account balances (except for owner's capital)of Wilson Mowing Service as of December 31 of the first year of operation:  The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year; during the year, the proprietor took $12,000 in drawings.
At the end of the year, what is the amount of total assets?

Accepted Answer

Total assets = (Cash + Accounts Receivable + Prepaid Insurance + Equipment) = ($2,600 + $5,200 + $1,800 + $14,500) = $24,100.

Quiz 1: Accounting and the Business Environment

The assets and liabilities of Matt Wesley Auto Shop are as follows: Cash, $10,000; Accounts receivable, $8,200; Supplies, $1,050; Land, $25,000; Accounts payable, $6,530. What is the amount of owner's equity?

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

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

Net income is $29,000. Beginning capital balance was $34,000. Ending capital balance was $55,000. No capital contributions were made by the owner during the year. What amount of drawings was made?

A business receives a bill for services rendered from one of its suppliers. The business will pay the supplier next month. When the business receives the bill from its supplier, how does this affect the accounting equation?

Total liabilities increase by $7,000. How is the accounting equation affected?

The business receives cash from a customer that is owed to the company "on account," based on services rendered to the customer previously. How does the collection of the cash affect the accounting equation?

A business performs services for its customers. Payment is expected to be received next month. How does the performance of services affect the accounting equation?

A proprietor makes a cash withdrawal from the proprietorship. How does this affect the accounting equation?

An individual asset has increased. Which of the following is possible?

Land is purchased by the business for $100,000. The company pays for land with a $20,000 cash payment and the execution of an $80,000 promissory note payable to the seller. How does this purchase affect the business's accounting equation?

The business collects a $5,000 account receivable from its customer. How is the accounting equation affected?

Equipment is sold for cash in an amount equal to the cost of the equipment recorded on the books. How does this sale affect the accounting equation?