MY LIFE: HW in Accounting

Exercises

E3-1 True or False

1. Only business transactions that affect cash can be analyzed in terms of basic accounting equation.

2. Each transaction should be supported by the appropriate source document.

3. The basic tool of accounting is the account.

4. According to the accounting equation, the asset of a business entity must always be equal to total liabilities.

5. A debit entry always increases the balance of an account.

6. The residual interest presentation of the accounting equation shows that equity is equal to assets less liabilities.

7. If there are more debit amounts than credit amounts, the account will have a normal balance.

8. Accounts that appear on the right side of the accounting equation usually have a credit balance.

9. For every transaction, there are at least two accounts affected.

10. A credit acquisition of a piece of office equipment will cause total assets to increase.

11. If a receivable is collected, the net effect will be an increase in total assets.

12. Payment of a liability will not affect total assets but will cause total liabilities to decrease.

13. Income is recorded in the same manner as assets.

14. Expenses are recorded in the opposite manner as assets.

15. In every entry, the difference between total debits and total credits should be zero.

16. A prepayment is an asset account.

17. Unearned income is the opposite of prepayments.

18. If an owner withdraws money for personal use, the capital account is directly reduced.

19. The debit and credit rules on income and expenses are based on their effect to total assets.

20. The T-account is a more complex form of the account and should be used for more complex transactions.

E3-2 Multiple choices

1.The accounting equation:

a. Shows the claim of creditors on the company’s assets.

b. Is used to determine the amount of assets owned.

c. Is used to determine the amount of income earned during the period.

d. Shows the claims on the entity’s assets by both the creditors and the owner/ proprietor or partners.

2. The accounting equation is normally presented as: A = L+E. Which of the following is an acceptable alternative presentation of the accounting equation?

a. Assets + Liabilities = Equity

b. Equity + Assets = Liabilities

c. Assets = Equity – Liabilities

d. Assets – Liabilities = Equity

3. the accounting equation, an increase in asset can be associated with:

a. An increase in a liability.

b. A decrease in equity.

c. A decrease in another asset.

d. An increase in another asset.

4. Decrease in asset may:

a. Decrease another asset.

b. Decrease liabilities.

c. Increase equity.

d. Increase liabilities.

5. If total assets increased P40,000 during the period and total liabilities decreased P24,000 during the same period, the amount and direction (increase or decrease) of the change in equity for that period:

a. A P64,000 increase.

b. A P64,000 decrease.

c. A P16,000 increase.

d. A P16,000 decrease.

6. As of December 31, 2009, ACJ CO. has assets of P350,000 and equity of 200,000. How much are liabilities as at December 31, 2009?

a. P100,000.

b. P150,000.

c. P200,000.

d. P250,000.

7. If revenue was 90,000, expenses were P75,000 and the withdrawal was P20,000, the amount of net income or net loss would be:

a. P90,000 net income.

b. P15,000 net income.

c. P75,000 net loss.

d. P5,000 net loss.

8. Net income will result during a time period when:

a. Assets exceed liabilities.

b. Assets exceed revenues.

c. Expenses exceed revenues.

d. Revenues exceed expenses.

9. The following can be found in an income statement, except:

a. Liabilities.

b. Revenues.

c. Net income.

d. Net loss.

10. Which of the following best presents the effect of performing services on credit?

a. Increase in assets and decrease in equity.

b. Increase in assets and increase in equity.

c. Increase in assets and increase in liabilities.

d. Increase in liabilities and increase in equity.

11. When a business entity receives payment before delivering goods, the unearned revenue account is:

a. Debited.

b. Credited.

c. Debited and credited.

d. Not affected.

12. When a customer is billed for services performed, the cash account is:

a. Debited.

b. Credited.

c. Debited and credited.

d. Not affected.

13. All of the following affect the equity account except:

a. Original investment.

b. Additional investment.

c. Withdrawal by the owner.

d. Payment of a liability.

14. Which of the following items does not affect equity?

a. Proprietor’s investment in the business

b. Net income for the period

c. Payments to supplies for purchases on account

d. Net loss for the period

15. A credit entry decreases the balance of:

a. Equity.

b. Assets.

c. Revenues

d. Liabilities

16. Credits:

a. Increase both assets and liabilities.

b. Decrease both assets and liabilities.

c. Increase assets and decrease liabilities.

d. Decrease assets and increase liabilities.

17. The following statements refer to the account. Select the correct statement.

a. In its simplest form, an account is composed of two parts.

b. There are separate, individual accounts for specific assets and liabilities but only one account for equity items.

c. The left side of an account is known as a debit or increase.

d. An account is an individual accounting record of increases and decreases in specific asset, liabilities, and equity items.

18. A n owner invested P25,000 cash in a business venture. As a result:

a. Assets increase by P25,000

b. Liabilities decrease by P25,000

c. Revenues increase by P25,000

d. Total equity is not affected.

19. Expenses can be defined as:

a. Increase in equity.

b. Decreases in equity.

c. Outflows or using up of assets or incurrence of liabilities from delivering or producing goods or rendering of services.

d. Inflows of assets from delivering or producing goods or rendering services.

20. Five years ago Maria Gracia Co. purchase land for P400,000. The land is now worth P700,000; it is expected that the land will be worth about P1,000,000 within the next 2 years. At what amount should Maria Gracia Co. report the land on its balance sheet?

a. P300,000

b. P400,000

c. P700,000

d. P1,000,000

E3-3 For each of the transactions, encircle two (or more) effects on the accounting equation of the business or company.

1. The owner invests personal cash in the business.

Assets Increase Decrease No Effect