Q: Which of the following correctly expresses the basic accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$$

Q: A company purchases equipment for $15,000 cash. What is the effect on the accounting equation?

$$\text{Assets}$$ increase and decrease by the same amount, $$\text{Liabilities}$$ and $$\text{Owner's Equity}$$ unaffected

Q: If a company has $$120,000 in assets, 40$$,000 in liabilities, and $$80,000 in owner's equity, what is the result if it pays off 10$$,000 of its liabilities with cash?

$$\text{Assets}$$ decrease by $$10,000; $$\text{Liabilities}$$ decrease by 10$$,000; $$\text{Owner's Equity}$$ unchanged

Q: A company issues common stock for $50,000 cash. What is the effect on the accounting equation?

$$\text{Assets}$$ increase, $$\text{Liabilities}$$ unaffected, $$\text{Owner's Equity}$$ increase

Question 1

Which of the following correctly expresses the basic accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Owner's Equity}$$

Question 2

A company purchases equipment for $15,000 cash. What is the effect on the accounting equation?

Accepted Answer

$$	ext{Assets}$$ increase and decrease by the same amount, $$	ext{Liabilities}$$ and $$	ext{Owner's Equity}$$ unaffected

Question 3

Which business organization best allows a company to raise large sums of capital?

Accepted Answer

Corporation

Question 4

If a company has $$120,000 in assets, 40$$,000 in liabilities, and $$80,000 in owner's equity, what is the result if it pays off 10$$,000 of its liabilities with cash?

Accepted Answer

$$	ext{Assets}$$ decrease by $$10,000; $$	ext{Liabilities}$$ decrease by 10$$,000; $$	ext{Owner's Equity}$$ unchanged

Question 5

Which financial statement shows the ending balance of 'accounts receivable'?

Accepted Answer

Balance Sheet

Question 6

A company receives $5,000 cash from a customer for services to be performed next month. How should this transaction be recorded?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 7

If a company has $$200,000 in assets, 80$$,000 in liabilities, and $70,000 in retained earnings, what is the amount of common stock?

Accepted Answer

$50,000

Question 8

Which of the following accounts would be closed at the end of the accounting period?

Accepted Answer

Supplies Expense

Question 9

A company prepaid $12,000 for six months of rent on October 1. What is the rent expense recognized for October, assuming monthly adjustments?

Accepted Answer

$1,000

Question 10

If accounts receivable has a $$12,000 beginning balance, 6$$,000 ending balance, and there were $30,000 in sales on account, how much were cash collections?

Accepted Answer

$24,000

Question 11

Which principle is violated if a company prepares financial statements assuming it will continue to operate, but its liabilities greatly exceed its assets?

Accepted Answer

Going Concern (Continuity) Assumption

Question 12

Which of the following is the most accurate statement regarding ethics as applied to decision making in accounting?

Accepted Answer

Ethics involves making difficult choices under pressure and should be kept in mind in making every decision, including those involving accounting.

Question 13

Which of the following best describes the matching principle?

Accepted Answer

Expenses should be reported in the same period as the corresponding revenue is earned.

Question 14

A company issues common stock for $50,000 cash. What is the effect on the accounting equation?

Accepted Answer

$$	ext{Assets}$$ increase, $$	ext{Liabilities}$$ unaffected, $$	ext{Owner's Equity}$$ increase

Question 15

Which account is increased when a company receives payment from a customer for a previous sale on account?

Accepted Answer

Cash

Question 16

If a company has $$500,000 in current assets, 250$$,000 in current liabilities, and $450,000 in long-term liabilities, what is the current ratio?

Accepted Answer

$$2.0$$

Question 17

Which of the following accounts is NOT an asset?

Accepted Answer

Unearned Revenue

Question 18

Which of the following transactions would increase both assets and liabilities?

Accepted Answer

Purchasing supplies on account

Question 19

Which qualitative characteristic of accounting information requires that information be complete, neutral, and free from error?

Accepted Answer

Faithful representation

Question 20

If a company pays $2,000 cash for an expense, what is the journal entry?

Accepted Answer

Debit Expense $$2,000; Credit Cash 2$$,000

Financial Accounting Fundamentals: Key Concepts, Principles, and Exam Practice

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