Question 1

Consider the following transactions:
 Issued common stock for cash.
Purchased equipment by signing a note payable.
Provided services to customers on account.
Collected cash from customers on account.
How many of these four transactions increased the given company's total liabilities?

Accepted Answer

Purchased equipment by signing a note payable.

Question 2

Purchasing office equipment on account has what impact on the accounting equation?

Accepted Answer

Purchasing office equipment on account (i.e. on credit) increases the liability (accounts payable) and the asset (office equipment) accounts. This results in an increase in both assets and liabilities and therefore maintains the accounting equation (Assets = Liabilities + Stockholders' Equity).

Question 3

Following are transactions of Gotebo Tanners,Inc.,a new company,during the month of January 2012: 1.Issued 10,000 shares of common stock for $15,000 cash.
2)Purchased land for $12,000,signing a note payable for the full amount.
3)Purchased office equipment for $1,200 cash.
4)Received cash of $14,000 for services provided to customers during the month.
5)Purchased $300 of office supplies on account.
6)Paid employees $10,000 for their first month's salaries.
What was the total amount of Gotebo's liabilities following these six transactions?

Accepted Answer

The liabilities consist of the note payable for the land ($12,000) and the accounts payable for office supplies ($300), totaling $12,300.

Question 4

Consider the following transactions:
 Issued common stock for cash.
Purchased equipment by signing a note payable.
Paid rent for the current month.
Collected cash from customers on account.
How many of these four transactions increased the given company's total assets?

Accepted Answer

The two transactions that increased the company's total assets are issuing common stock for cash and purchasing equipment by signing a note payable. Both of these transactions involve an increase in assets, either in the form of cash or equipment. Paying rent and collecting cash from customers on account do not result in an increase in total assets.

Question 5

The Unearned Revenue account is shown in which statement?

Accepted Answer

The Unearned Revenue account represents revenue received for goods or services that have not yet been delivered or performed. This is a liability as the company has an obligation to provide the goods or services in the future. As such, it is reported on the balance sheet under the current liabilities section.

Question 6

On January 1,Brad Inc.sold $30,000 in products to a customer on account.Then,on January 10,Brad collected the cash on that account.What is the impact on Brad's accounting equation from the collection of cash on January 10?

Accepted Answer

The collection of cash increases one asset (cash) and decreases another asset (accounts receivable) by the same amount, resulting in no net effect on the accounting equation.

Question 7

Following are transactions of Gotebo Tanners,Inc.,a new company,during the month of January 2012: 1.Issued 10,000 shares of common stock for $15,000 cash.
2)Purchased land for $12,000,signing a note payable for the full amount.
3)Purchased office equipment for $1,200 cash.
4)Received cash of $14,000 for services provided to customers during the month.
5)Purchased $300 of office supplies on account.
6)Paid employees $10,000 for their first month's salaries.
What was the balance of Gotebo's Cash account following these six transactions?

Accepted Answer

The cash account balance is calculated as follows:  1. Initial cash from issuing stock: +$15,000  2. Cash spent on office equipment: -$1,200  3. Cash received for services: +$14,000  4. Cash paid for salaries: -$10,000  Total cash balance = $15,000 - $1,200 + $14,000 - $10,000 = $17,800.

Question 8

Which of the following transactions causes a decrease in stockholders' equity?

Accepted Answer

Paying dividends to stockholders reduces the amount of retained earnings, which is a component of stockholders' equity. The other transactions listed would not directly cause a decrease in stockholders' equity.

Question 9

If a company provides services on account,which of the following is true?

Accepted Answer

When a company provides services on account, it records revenue, which increases stockholders' equity through an increase in retained earnings.

Question 10

Following are transactions of Gotebo Tanners,Inc.,a new company,during the month of January 2012:
1.Issued 10,000 shares of common stock for $15,000 cash.
2)Purchased land for $12,000,signing a note payable for the full amount.
3)Purchased office equipment for $1,200 cash.
4)Received cash of $14,000 for services provided to customers during the month.
5)Purchased $300 of office supplies on account.
6)Paid employees $10,000 for their first month's salaries.
How many of these transactions decreased Gotebo's total assets?

Accepted Answer

Transactions 2 and 6 decreased Gotebo's total assets. Transaction 2 decreased assets by $12,000, and transaction 6 decreased assets by $10,000.

Question 11

Providing services and receiving cash will:

Accepted Answer

Providing services and receiving cash will increase the company's assets (cash), and as a result, the stockholders' equity will also increase. This is because the company has more resources (cash) to use towards its operations or pay off debts, which benefits the owners (stockholders) in the long run.

Question 12

Purchasing supplies for cash has what effect on the accounting equation?

Accepted Answer

Purchasing supplies for cash decreases one asset (cash) and increases another asset (supplies), resulting in no net effect on the accounting equation.

Question 13

How many of the following events would require an expense to be recorded?
Ordering office supplies
Hiring a receptionist
Paying employee salaries for the current month
Receiving but not paying a current utility bill
Paying for insurance in advance

Accepted Answer

Ordering office supplies would not require an expense to be recorded until the supplies are received and paid for. Hiring a receptionist would require recording an expense for their salary. Paying employee salaries for the current month would require recording an expense. Receiving but not paying a current utility bill would not require recording an expense until the bill is paid. Paying for insurance in advance would require recording an expense for the portion of the insurance that applies to the current period. Therefore, two events, hiring a receptionist and paying employee salaries, would require an expense to be recorded.

Question 14

Assume that Sallisaw Sideboards,Inc.had a retained earnings balance of $10,000 on April 1,and that the company had the following transactions during April.
 Issued common stock for cash,$5,000.
Provided services to customers on account,$2,000.
Provided services to customers in exchange for cash,$900.
Purchased equipment and paid cash,$4,300.
Paid April rent,$800.
Paid workers salaries for April,$700.
What was Sallisaw's retained earnings balance at the end of April?

Accepted Answer

The retained earnings balance is calculated by adding net income to the beginning retained earnings. Net income is calculated as revenues minus expenses. Revenues from services are $2,000 (on account) + $900 (cash) = $2,900. Expenses are $800 (rent) + $700 (salaries) = $1,500. Net income is $2,900 - $1,500 = $1,400. Adding this to the beginning retained earnings of $10,000 gives $11,400.

Question 15

When a payment is made on an account payable:

Accepted Answer

When a payment is made on an account payable, both the asset (cash) and liability (accounts payable) decrease. This reduces both the assets and liabilities in the balance sheet, without affecting stockholders' equity. Therefore, option B is the best choice. Option A is incorrect because it implies that stockholders' equity is affected, which is not the case. Option C is incorrect because it combines a liability with a revenue, which are two different categories in the financial statements. Option D is incorrect because it combines an asset with an expense, which are also two different categories.

Question 16

Which of the following is NOT possible for a business transaction?

Accepted Answer

A business transaction cannot increase assets and decrease revenue simultaneously as assets and revenue have an inverse relationship. When assets increase, revenue should also increase, and vice versa. Therefore, Choice A is not possible for a business transaction.

Question 17

When a company provides services on account,the accounting equation would be affected as follows:

Accepted Answer

When a company provides services on account, it is recognizing revenue (an increase in stockholders' equity) without receiving payment (no change in assets). Therefore, the accounting equation is affected by an increase in stockholders' equity.

Question 18

Following are transactions of Gotebo Tanners,Inc.,a new company,during the month of January 2012:
1.Issued 10,000 shares of common stock for $15,000 cash.
2)Purchased land for $12,000,signing a note payable for the full amount.
3)Purchased office equipment for $1,200 cash.
4)Received cash of $14,000 for services provided to customers during the month.
5)Purchased $300 of office supplies on account.
6)Paid employees $10,000 for their first month's salaries.
How many of these transactions increased Gotebo's liabilities?

Accepted Answer

Transactions 2 and 5 increased liabilities. Transaction 2 involved signing a note payable for land, and transaction 5 involved purchasing supplies on account.

Question 19

On September 30,MFP Co.paid employee salaries $7,000,including $1,000 it owed to its employees last month.What are the effects of this transaction on the accounting equation?

Accepted Answer

The payment of employee salaries decreases the assets (cash) by $7,000, decreases the liabilities (amount owed to employees) by $1,000, and increases the expenses (salary expense) by $7,000, resulting in a decrease in equity (retained earnings). Therefore, the effect on the accounting equation is a decrease in assets, decrease in liabilities, and an increase in expenses. This is reflected in option B.

Question 20

Purchasing office supplies on account will:

Accepted Answer

When office supplies are purchased on account, assets (inventories) increase due to the acquisition of the supplies but liabilities (accounts payable) also increase because payment for the supplies is not yet made. Therefore, purchasing office supplies on account increases both assets and liabilities.

Quiz 2: The Accounting Information System

Consider the following transactions: Issued common stock for cash. Purchased equipment by signing a note payable. Provided services to customers on account. Collected cash from customers on account. How many of these four transactions increased the given company's total liabilities?