Question 1

Winsome Inc.reports total assets and total liabilities of $225,000 and $100,000,respectively,at the conclusion of its first year of business.The company earned $75,000 during the first year and distributed $30,000 in dividends.What was the corporation's share capital?

Accepted Answer

The formula for calculating share capital is:

Share capital = Total assets - Total liabilities - Retained earnings - Dividends

Using the information given in the problem:

Share capital = $225,000 - $100,000 - ($75,000 - $30,000)
Share capital = $225,000 - $100,000 - $45,000
Share capital = $80,000

Therefore, the corporation's share capital was $80,000.

Question 2

When recording transactions in T-account format,we must add an additionalstep to the transactional analysis process.Which of the following is the additional step?

Accepted Answer

The additional step when recording transactions in T-account format is to ensure that the debits and credits are equal, also known as ensuring that the accounts remain in balance. This is necessary to maintain accounting accuracy and to ensure that the financial statements reflect the true financial position of a company. A, B, and D are all part of the traditional transactional analysis process.

Question 3

The effect on total assets of the purchase of supplies for cash is which of the following?

Accepted Answer

When supplies are purchased for cash, one asset (cash) decreases while another asset (supplies) increases by the same amount, leaving total assets unchanged.

Question 4

The collection of a trade receivable from a customer would do which of the following?

Accepted Answer

Collecting a trade receivable from a customer affects the asset side of the balance sheet by decreasing receivables and increasing cash but does not affect liabilities or shareholders' equity.

Question 5

The equality of debits and credits is the basis for

Accepted Answer

The equality of debits and credits is a fundamental principle of the double-entry accounting system, which is the most widely used accounting system in the world. It is based on the idea that every business transaction affects at least two accounts, with a debit entry on one account and a credit entry on another account. The principle of debits and credits ensures that the total debits always equal the total credits, and this provides the basis for accurate and reliable financial reporting. The single-entry accounting system, on the other hand, is a simpler accounting method that does not rely on the principle of debits and credits, and the T account is a visual representation of the double-entry accounting system. Therefore, options B, C, and D are incorrect.

Question 6

The trade payables account has a beginning balance of $1,000 and we purchased $3,000 of inventory on credit during the month.The ending balance was $800.How much did we pay our creditors during the month?

Accepted Answer

The formula to calculate payments to creditors is:
Beginning balance + purchases on credit - ending balance = payments to creditors

Using the given information:
Beginning balance = $1,000
Purchases on credit = $3,000
Ending balance = $800

Therefore, payments to creditors = $1,000 + $3,000 - $800 = $3,200

Hence, the correct option is C.

Question 7

Jet Corporation was organized on March 1,20B.Jet Corporation issued shares to each of the six owners who paid in a total of $3,000 cash.On the basis of transaction analysis,the following entry should be recorded in the accounts (dr = debit and cr = credit)

Accepted Answer

The entry to record the issuance of shares would include a debit to Cash for the amount received, and a credit to Share Capital for the same amount. Therefore, the correct entry is:

Cash (dr) $3,000 
Share Capital (cr) $3,000

Option A is not correct because revenue is not earned through the issuance of shares. 
Option B is not correct because shareholders’ equity is a broader category that includes Share Capital and other items, and it is not specific enough for this transaction. 
Option D is not correct because Share Capital should be credited, not debited.

Question 8

When a company buys equipment for $60,000 and pays for one third in cash and the other two thirds is financed by a note payable,which of the following are the effects on the accounting equation?

Accepted Answer

The company pays $20,000 in cash (one third of $60,000), decreasing cash, and finances $40,000 with a note payable, increasing liabilities. Equipment increases by $60,000, but total assets increase by only $40,000 because cash decreases by $20,000.

Question 9

Borrowing $100,000 of cash from First National Bank would do which of the following?

Accepted Answer

Borrowing $100,000 of cash from First National Bank increases the company's liabilities, specifically notes payable. Since notes payable is a liability account, it is increased by recording a credit. Therefore, option C is the correct choice. Option A is incorrect because while cash is increasing, it is increasing because the company is receiving cash, not because it is crediting cash. Option B is incorrect because a debit would decrease notes payable, which is the opposite of what is happening here. Option D is incorrect because the company is receiving cash, not decreasing cash.

Question 10

Assume a company's January 1,20A,financial position was: Assets,$40,000 and Liabilities,$15,000.During January 20A,the company completed the following transactions: (a)paid on a note payable,$4,000 (no interest); (b)collected tradereceivables,$4,000; (c)paid trade payables,$2,000; and (d)purchased a truck,$1,000 cash,and $8,000 notes payable.What is the company's January 31,20A,financial position?

Accepted Answer

The answer of Assume a company's January 1,20A,financial position was:...

Question 11

Salida Company paid a note payable of $10,000 (interest had previously been paid).This transaction should be recorded as follows on the payment date.

Accepted Answer

The payment of a note payable involves debiting the note payable account to decrease the liability and crediting the cash account to reflect the outflow of cash.

Question 12

Which of the following will not result in recording a transaction?

Accepted Answer

Signing a contract does not involve an immediate exchange of goods, services, or cash, so it does not result in a transaction being recorded in the accounting records.

Question 13

A T account consists of

Accepted Answer

A T account has a title at the top and is divided into two sides: the left side is for debits and the right side is for credits. Each side shows the balance for that particular account.

Question 14

The best interpretation of the word credit is the

Accepted Answer

Credits are recorded on the right side of an account in double-entry bookkeeping.

Question 15

Which of the following transactions will cause both the left and right side of the equation to increase?

Accepted Answer

Borrowing money from the bank increases assets (cash) on the left side of the accounting equation and also increases liabilities (loan payable) on the right side, thus increasing both sides of the equation.

Question 16

Which of the following will NOT cause a change in the shareholder's equity of a business?

Accepted Answer

Payment of a business debt would not cause a change in the shareholder's equity as it involves only a reduction in the liability of the business. Shareholder's equity is affected by transactions that impact the assets, liabilities, or revenues/ expenses of the business. B, C, and D all involve such transactions as payment of dividends reduces the retained earnings, sale of land at a profit increases the assets and retained earnings, and losses from unprofitable operations reduce the retained earnings.

Question 17

Payment of a liability would do which of the following?

Accepted Answer

Payment of a liability would decrease assets because cash or other assets would be used to settle the obligation. It would not affect shareholders' equity unless the liability was a dividend or a distribution of profits, in which case it would decrease shareholders' equity.

Question 18

An accountant has debited an asset account for $500 and credited a revenue account for $1,000.What can be done to complete the recording of the transaction?

Accepted Answer

Since the accountant has debited an asset account for $500 and credited a revenue account for $1,000, the transaction is not complete. The accounting equation must always balance, and in this case, the asset and revenue accounts have been affected with no corresponding credit or debit to balance it out. Therefore, to complete the recording of the transaction, the accountant needs to debit another asset account for $500 to balance out the accounting equation.

Question 19

If total liabilities increased by $25,000 and shareholders' equity increased by $5,000 during a period of time,then total assets must change by what amount and direction during that same period?

Accepted Answer

According to the accounting equation, Assets = Liabilities + Shareholders' Equity. If liabilities increase by $25,000 and equity increases by $5,000, then assets must increase by $30,000 to keep the equation balanced.

Question 20

The following amounts are reported in the ledger of Bowers Company: What is the balance in the share capital account?

Accepted Answer

The answer of The following amounts are reported in the...

Quiz 2: Investing and Financing Decisions and the Accounting System