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21) Jason Repair Corporation incurred $1,500 as advertising expense and promised to pay the advertising
agency within 30 days. Which of the following will decrease as a result of this transaction?
A) Assets
B) Stockholders' equity
C) Liabilities
D) Revenues
22) Jones Supply Services paid $350 cash, the amount owed from the previous month, to a materials
supplier. Which of the following accounts decrease?
A) Accounts Receivable
B) Accounts Payable
C) Retained Earnings
D) Office Supplies
23) Montgomery Equipment Rental Company received $1,000 cash from a customer; the amount was
owed to the business from the previous month. What is the effect of this transaction on the accounting
equation?
A) Accounts Receivable increases and Service Revenue increases.
B) Cash increases and Accounts Receivable decreases.
C) Cash increases and Service Revenue increases.
D) Cash increases and Accounts Payable decreases.
24) Westwood Supply Services received $1,000 cash from a customer; the amount was owed to the
business from the previous month. Which of the following accounts will decrease as a result of this
transaction?
A) Cash
B) Revenue
C) Accounts Payable
D) Accounts Receivable
25) Diamond, Inc. had the following transactions during June:
Performed services for $2,000 on account; received cash on account, $8,000; paid $700 for repair expense;
paid $1,800 to a supplier that it owed from the previous month. What is the combined effect on Cash of
these June transactions?
A) $5,500 increase
B) $5,500 decrease
C) $8,000 increase
D) $2,500 decrease
26) Saturn, Inc. paid $13,000 on accounts payable. How does this transaction affect the accounting
equation of Saturn?
A) Assets decrease by $13,000 and equity increases by $13,000.
B) Assets decrease by $13,000 and liabilities decrease by $13,000.
C) Assets increase by $13,000 and equity decreases by $13,000.
D) Assets increase by $13,000 and liabilities increase by $13,000.
27) Brooks Landscaping Corporation performs lawn mowing services for its customers in May. Payments
for May's services are expected to be received in June. How does the transaction for performing services
in May affect the accounting equation of Brooks Landscaping?
A) Liabilities increase and equity decreases.
B) Assets and equity increase.
C) Assets and equity decrease.
D) Liabilities and equity increase.
28) Gena's Cleaning Services performs services for its customers during March. Payments for the March
services are received in June. How does the transaction for the collection of cash from customers affect the
accounting equation of Gena's Cleaning Services?
A) Liabilities increase and assets increase.
B) Total assets remain the same.
C) Assets increase and revenues increase.
D) Assets increase and equity decreases.
29) Mitchell Company receives a bill from one of its suppliers for advertising services received and will
pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting
equation of Mitchell?
A) Assets and equity decrease.
B) Liabilities increase and equity decreases.
C) Assets and liabilities increase.
D) Liabilities and equity increase.
30) Newton Corporation settles a liability by making a payment in cash. How does paying this liability
affect the accounting equation of the business?
A) Assets and liabilities decrease.
B) Liabilities decrease and equity increases.
C) Assets and liabilities increase.
D) Assets increase and equity decreases.
31) Lamar Corporation originally purchased land for $20,000. It later sold the land for $20,000 in cash.
Which of the following is true of the effect of the sale of land on the accounting equation?
A) Assets increase and liabilities decrease by $20,000.
B) Assets and equity increase by $40,000.
C) Assets increase by $20,000; equity increases by $20,000.
D) The amount of total assets remains the same.
32) Rosewood Corporation purchased land for $100,000 by making a cash payment of $38,000 and
promising to pay the remaining amount in a later accounting period. What is the net effect of this
transaction on Rosewood's accounting equation?
A) Assets increase by $100,000 and liabilities decrease by $38,000.
B) Assets increase by $100,000 and liabilities decrease by $62,000.
C) Assets and equity increase by $62,000.
D) Assets and liabilities increase by $62,000.
33) Mulberry Corporation collected $16,000 from one of its customers, the amount owed from the
previous month. How does this affect the accounting equation for Mulberry?
A) Assets increase by $16,000; liabilities decrease by $16,000.
B) Assets increase by $16,000; assets decrease by $16,000.
C) Assets increase by $16,000; liabilities increase by $16,000.
D) Assets increase by $16,000; equity increases by $16,000.
34) Country Homes Corporation just recorded a transaction in its books. If this transaction increased the
total liabilities by $10,000, then ________.
A) assets must increase, or equity must decrease by $10,000
B) either assets or equity must decrease by $10,000
C) both assets and equity must each decrease by $5,000
D) assets must decrease by $10,000
35) Which of the following can be an effect of a transaction that increased an asset of a corporation for the
accounting equation to balance?
A) There is an equal decrease in another asset.
B) There is an equal decrease in equity.
C) There is an equal decrease in a liability account.
D) Both liabilities and equity decrease.
36) Johnson Waterworks Corporation provides plumbing services. Transactions during the first year of
operations are provided below.
a) Received $11,000 cash and issued common stock to Mitchell Johnson.
b) Paid $1,200 for equipment to be used for plumbing repairs.
c) Borrowed $15,000 from a local bank and deposited the money in the checking account.
d) Paid $400 in rent for the year.
e) Paid $400 for plumbing supplies to be used on various jobs next year.
f) Completed a plumbing repair for a law firm and received $3,500.
Calculate the amount of total assets at the end of the first year. Assume the plumbing supplies of $400 are
left at the end of the year.
A) $1,600
B) $1,200
C) $26,000
D) $29,100
37) McCoy Corporation provides plumbing services. Transactions during the first year of operations are
provided below.
a) Received $12,000 cash and issued common stock to Sharon McCoy.
b) Paid $1,900 cash for equipment to be used for plumbing repairs.
c) Borrowed $10,000 from a local bank and deposited the money in the checking account.
d) Paid $400 rent for the year.
e) Purchased $500 of office supplies by cash.
f) Completed a plumbing repair project for a local lawyer and received $3,200 cash.
Calculate the amount of total liabilities at the end of the first year.
A) $10,000
B) $12,000
C) $20,100
D) $3,200
38) Gulf Waterworks Corporation provides plumbing services. Transactions during the first year of
operations are given below.
a) Received $4,000 cash and issued common stock to Jason Robinson.
b) Paid $2,000 cash for equipment to be used for plumbing repairs.
c) Borrowed $26,000 from a local bank and deposited the money in the checking account.
d) Paid $800 rent for the year.
e) Purchased $800 of office supplies on account.
f) Completed a plumbing repair project for a local lawyer and received $3,500 cash.
Calculate the amount of total stockholders' equity at the end of the first year after recording the
transactions. Assume office supplies of $800 are left at the end of the year.
A) $6,700
B) $3,500
C) $4,000
D) $26,000
39) Springer Corporation had the following transactions in August:
Earned $2,000 of revenues on account; collected $4,000 from a customer for services provided last month;
incurred $600 of repair expense and paid cash; paid $200 for rent that it owed from the previous month.
What is the net income in August?
A) $600
B) $4,000
C) $5,400
D) $1,400
40) ________ represent the right to receive cash in the future from customers for goods sold or for services
performed.
A) Accounts Receivable
B) Accounts Payable
C) Equity
D) Expenses
41) ________ represents a short-term liability created by purchasing "on account."
A) Accounts Receivable
B) Notes Payable
C) Accounts Payable
D) Expenses
59
42) Indicate the effects on the accounting equation of the following business transactions of ABC Service
Corporation for b) to d) below. Use proper account titles. Transaction a) is answered as a guide.
a) Received cash from Mary Johnson; issued common stock to her.
43) Indicate the effects on the accounting equation of the following business transactions of Pilgrim
Service Corporation for b) to d) below. Use proper account titles. Transaction a) is answered as a guide.
a) Received cash from Maxwell Jones; issued common stock to him.
44) Indicate the effects on the accounting equation of the following business transactions of Garland
Service Corporation for b) to d) below. Use proper account titles. Transaction a) is answered as a guide.
a) Received cash from Trent Garland issued common stock to him.
45) Analyze each of the following transactions in terms of their effects on the accounting equation of
Osgood Delivery Service. Enter the correct amounts in the columns of the spreadsheet.
a) James Osgood contributes $75,000 to the business. The business issues common stock to James.
b) The business purchases $750 of office supplies on account.
c) The business pays cash to purchase a delivery van for $25,000.
d) Services are performed for clients and $5,000 cash is received.
e) Cash is paid for office rent expense, $800 and utilities expense, $400.
f) Cash dividends of $1,000 are paid to stockholders.
