CHAPTER 1
How are assets, liabilities and net worth affected respectively when paying expenses with cash?
a. Increase; Decrease; No Change
b. Decrease; Decrease; No Change
c. Decrease; No Change; Decrease
d. Increase; No Change; Decrease
C. Decrease; No Change; Decrease
Which category of statement of cash flows shows cash inflows and outflows that are related to long-term investments in the company’s infrastructure?
a. Cash flow from selling activities
b. Cash flow from operating activities
c. Cash flow from financing activities
d. Cash flow from investing activities
D. Cash flow from investing activities
A debit to an expense account will:
a. Decrease Assets
b. Decrease Owner’s Equity
c. Decrease Liabilities
d. Increase Revenues
B. Decrease Owner’s Equity
When a business is renting out a property, at the time of recognizing rent revenue from prepaid rent, how are the accounts impacted for the renter?
Select one:
a. Liabilities decrease and equity decreases
b. Liabilities increase and equity increases
c. Liabilities decrease and equity increases
d. Assets increase and equity increases
c. Liabilities decrease and equity increases
The Statement of Owner’s Equity is the link between:
Select one:
a. The journal and the ledger
b. The Ledger and the Trial balance
c. The Income Statement and the Balance sheet
d. Debits and Credits
c. The Income Statement and the Balance sheet
The ending net worth is calculated at −$3,200, while the beginning net worth was $2,000 along with a deficit of $6,000. What was the capital amount for that period?
$800
Explanation: ($3,200) = $2,000 − $6,000 + $800 (Capital)
When an owner invests cash in the business, the transaction is recorded by:
a. Decreasing assets; decreasing owner’s equity
b. Decreasing assets; increasing liabilities
c. Decreasing assets; decreasing liabilities
d. Increasing assets; increasing owner’s equity
D. Increasing assets; increasing owner’s equity
The entry to record the payment of Bank loan principal and interest requires:
Select one:
a. A debit to Cash and a credit to Bank Loan
b. A debit to Bank Loan and a debit to Cash
c. A debit to Interest Expense and a credit to Bank Loan
d. A debit to Interest Expense, a debit to Bank Loan, and a credit to Cash
d. A debit to Interest Expense, a debit to Bank Loan, and a credit to Cash
Sara Lui started up a business in advertising for the end of June. On July 1, Sara signed a one-year lease for her space and prepaid three months’ rent in advance. The payment was recorded as $6,000. Rent is paid on the last day of each month. What would be the entry made related to the rent on July 1?
Select one:
a. Debit Prepaid Rent $2,000; credit Cash $2,000
b. Debit Rent Expense $6,000; credit Prepaid Rent $6,000
c. Debit Prepaid Rent $6,000; credit Cash $6,000
d. Debit Rent Expense $2,000; credit Prepaid Rent $2,000
c. Debit Prepaid Rent $6,000; credit Cash $6,000
The Statement of Owner’s Equity reports:
Select one:
a. Only the change in Income over the reporting period.
b. The change in Working capital over the reporting period.
c. The changes in any Owner’s equity items over the reporting period.
d. The change in Capital assets over the reporting period.
c. The changes in any Owner’s equity items over the reporting period.
A decrease to net worth caused by day-to-day activities is called:
Expenses
When a company gets paid for providing a service, the transaction is recorded by:
a. Increasing assets; decreasing owner’s equity
b. Decreasing liabilities; increasing owner’s equity
c. Increasing assets; increasing liabilities
d. Increasing assets; increasing owner’s equity
D. Increasing assets; increasing owner’s equity
Rasty is the owner of a painting business. On July 1, 2022, they received a telephone bill for $500, which will be paid later on August 5, 2022. How should they record the journal entry for this transaction on July 1, 2022?
Select one:
a. Debit Telephone Bill $500; credit Cash $500
b. They should make a note at that time in the books to only record this transaction on August 5, 2022
c. Debit Telephone Expense $500; credit Accounts Payable $500
d. No need to record this entry as no payment is made at that time
c. Debit Telephone Expense $500; credit Accounts Payable $500
SHIN Company has $1,500 interest that has accrued on its bank loan in October 2022. The interest payment is due November 1, 2022. What would be the adjusting entry related to the interest on October 30, 2022?
Select one:
a. Debit Interest Expense $750; credit Interest Payable $750
b. Debit Interest Payable $750; credit Cash $750
c. Debit Interest Payable $1,500; credit Cash $1,500
d. Debit Interest Expense $1,500; credit Interest Payable $1,500
d. Debit Interest Expense $1,500; credit Interest Payable $1,500
Assume Rate Services has the year end balances as follow: Rate, Capital Beginning: $100,000; Additional Investments: $15,000; Net Loss: $5,500; Rate, Withdrawals: $0. What would be the balance of its ending year’s capital account?
Select one:
a. $115,000
b. $120,500
c. $100,000
d. $109,500
d. $109,500
Explanation: Owner’s Equity = Beginning Owner’s Capital + Additional Owner Investments + Net Income (Loss) − Owner’s Withdrawals $100,000 + $15,000 - $5,500 = $109,500
Mary Jin has earned $700 in interest on her RRSP investment for the month of May 2022. When preparing her personal income statement, how should the $700 be recorded?
REVENUE
Sara has a small art gallery where she sells her art work. She purchased store equipment for $4,000 cash. How would this transaction be recorded in T-accounts?
a. Increase Accounts Receivable (left side) by $4,000; increase Equipment (left side) by $4,000
b. Increase Capital (right side) by $4,000; increase Equipment (left side) by $4,000
c. Decrease Cash (left side) by $4,000; increase Equipment (left side) by $4,000
d. Decrease Cash (right side) by $4,000; increase Equipment (left side) by $4,000
D. Decrease Cash (right side) by $4,000; increase Equipment (left side) by $4,000
Sara Fenn is going through the bookkeeping for her small catering business. During the past month, they paid cash for a 6-month insurance policy. How should this transaction be recorded in the books?
Select one:
a. Increase (Debit) Insurance Expense; Decrease (Credit) Cash
b. Increase (Debit) Prepaid Insurance; Decrease (Credit) Cash
c. Increase (Credit) Prepaid Insurance; Decrease (Debit) Cash
d. Decrease (Credit) Prepaid Insurance; Increase (Debit) Cash
b. Increase (Debit) Prepaid Insurance; Decrease (Credit) Cash
Assume a business has an opening balance of $2,000 for its unearned revenue for the month of June. The business earned $1,200 of unearned revenue by the end of June. Using the trial balance for June 30, 2022, how would the business present this adjustment for the unearned revenue account into its worksheet?
Select one:
a. Unadjusted Trial Balance: $2,000 CR; Adjustments: $800 DR; Adjusted Trial Balance: $1,200 CR
b. Unadjusted Trial Balance: $2,000 CR; Adjustments: $1,200 DR; Adjusted Trial Balance: $800 CR
c. Unadjusted Trial Balance: $2,000 CR; Adjustments: $1,200 CR; Adjusted Trial Balance: $3,200 CR
d. Unadjusted Trial Balance: $2,000 CR; Adjustments: $1,200 CR; Adjusted Trial Balance: $3,200 CR
b. Unadjusted Trial Balance: $2,000 CR; Adjustments: $1,200 DR; Adjusted Trial Balance: $800 CR
According to IFRS, how often companies are required to prepare financial statements in a fiscal year?
Select one:
a. Fully depends on the company’s policies; no requirements specified under IFRS.
b. At least once per quarter.
c. Once in a year.
d. At maximum, twice in a year.
b. At least once per quarter.
Rachel Bernard has a $11,000 bank loan and has just made a payment of $1,200. Of the $1,200 payment, $100 is for interest and the rest is for the principal. What is the new balance of the bank loan?
9900
11000-1100=9900
MNO Co. received a $2,000 bill for maintenance to be paid next month. How should this transaction be recorded?
a. Increase Prepaid Expense; decrease Cash
b. Increase Accounts Payable; increase Expense
c. Decrease Cash; increase Expense
d. Decrease Cash; increase Expense
B. Increase Accounts Payable; increase Expense
A trial balance is used to confirm that:
Select one:
a. All transactions have been recorded
b. Total debits equal total credits
c. Each journal has been posted
d. Each journal entry has been posted only once
b. Total debits equal total credits
Suden Company provided services worth $12,000 to its customer in July, and they paid in cash in September. Which of the following journal entries is required to record the related transaction in September?
Select one:
a. Debit Cash; credit Service Revenue
b. Debit Cash; credit Accounts Receivable
c. Debit Accounts Receivable; credit Unearned Revenue
d. Debit Accounts Receivable; credit Service Revenue
b. Debit Cash; credit Accounts Receivable
Assume Seera Services has the year end balances as follow: Total Asset: $235,000; Total Liabilities: $150,000; Additional Investments: $20,000; Net Income: $1,500; Seera, Withdrawals: $1,000. What would be the balance of its beginning year’s capital account?
Select one:
a. $83,500
b. Cannot be determined.
c. $64,500
d. $85,000
c. $64,500
Explanation: Owner’s Equity = Beginning Owner’s Capital + Additional Owner Investments + Net Income (Loss) − Owner’s Withdrawals ($235,000 - $150,000) = $85,000 – ($1,500 + $20,000) +1,000 = $64,500