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Exam 2: The Accounting Equation and Transaction Analysis

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Question 81

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Grey Company received a bill of $2,800 from the Sloan Advertising Agency. The owner is postponing payment of the bill until a later date. The effect on the basic accounting equation is

A) a decrease in Cash and an increase in Accounts Payable.
B) a decrease in Cash and an increase in Owner's Capital.
C) an increase in Accounts Payable and a decrease in Owner's Capital.
D) a decrease in Accounts Payable and an increase in Owner's Capital.

E) A) and C)
F) B) and C)

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Question 82

Multiple Choice

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If services are rendered for credit, then

A) assets will decrease.
B) liabilities will increase.
C) owner's equity will increase.
D) liabilities will decrease.

E) None of the above
F) All of the above

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Question 83

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In order to possess future service potential, an asset must have physical substance.

For the items listed below, fill in the appropriate code letter to indicate whether the item is an asset, liability, or owner's equity item.

The basic accounting equation may be expressed as

If total liabilities decreased by $40,000 and owner's equity decreased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

Indicate which of these items is an asset (A), liability (L) or owner's equity (OE) account.

Mirah Company compiled the following financial information as of December 31, 2020: $\begin{array}{lr}\text { Revenues } & \$ 340,000 \\\text { Owner's Capital }(1 / 1 / 20) & 140,000 \\\text { Equipment } & 80,000 \\\text { Expenses } & 240,000 \\\text { Cash } & 90,000 \\\text { Owner's Drawings } & 20,000 \\\text { Supplies } & 20,000 \\\text { Accounts payable } & 40,000 \\\text { Accounts receivable } & 70,000\end{array}$ Mirah's assets on December 31, 2020 are

For each of the following, descri(a) Increase one asset and decrease another asset. (b) Increase an asset and increase a liability. (c) Decrease an asset and decrease a liability. (d) Increase an asset and increase owner's equity. (e) Increase one asset, decrease one asset, and increase a liability.

Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

Transactions made by Benj & Co., an accounting firm, for the month of May are shown below. Prepare a tabular analysis, which shows the effects of these transactions on the expanded accounting equation, with owner's equity columns for Capital, Drawings, Revenues, and Expenses 1. The owner invested $20,000 cash in the business. 2. The company purchased $8,000 of office equipment on credit. 3. The company received $9,000 cash in exchange for services performed. 4. The company paid $1,350 for this month's rent. 5. The owner withdrew $2,000 cash for personal use.

The resources a business owns are

Which one of the following increases owner's equity?