9) A business settles a liability by making a payment with cash. How does paying this liability affect the accounting
equation?
A) Assets decrease; liabilities decrease.
B) Liabilities decrease; owner’s equity increases.
C) Assets increase; liabilities increase.
D) Assets increase; liabilities decrease.
10) A proprietor makes a cash withdrawal from the proprietorship. How does this affect the accounting equation?
A) This has no effect on assets, liabilities, or owner’s equity.
B) Assets decrease; owner’s equity decreases.
C) Assets increase; liabilities decrease.
D) Assets decrease; owner‘s equity increases.
11) Equipment is sold for cash in an amount equal to the cost of the equipment recorded on the books. How does
this sale affect the accounting equation?
A) One asset increases; one asset decreases.
B) Assets increase; liabilities increase.
C) Assets increase; liabilities decrease.
D) Assets increase; owner‘s equity increases.
12) The business receives cash from a customer that is owed to the company “on account,” based on services
rendered to the customer previously. How does the collection of the cash affect the accounting equation?
A) Assets increase; owner‘s equity increases.
B) Assets increase; liabilities increase.
C) One asset increases; one asset decreases.
D) Assets decrease; owner‘s equity decreases.
13) Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the
accounting equation?
A) Assets increase $20,000; liabilities decrease $20,000.
B) Assets increase $20,000; liabilities increase $20,000.
C) Assets increase $20,000; owner’s equity increases $20,000.
D) Assets increase $20,000; assets decrease $20,000.
14) Land is purchased by the business for $100,000. The company pays for land with a $20,000 cash payment and
the execution of an $80,000 promissory note payable to the seller. How does this purchase affect the business‘s
accounting equation?
A) Assets increase $80,000; liabilities decrease $20,000.
B) Assets increase $20,000; liabilities decrease $80,000.
C) Assets increase $80,000; owner’s equity increases $80,000.
D) Assets increase $80,000; liabilities increase $80,000.
15) The business collects a $5,000 account receivable from its customer. How is the accounting equation affected?
A) Assets increase $5,000; liabilities decrease $5,000.
B) One asset increases by $5,000; another asset decreases $5,000.
C) Assets increase $5,000; liabilities increase $5,000.
D) Assets increase $5,000; owner’s equity increases $5,000.
16) Total liabilities increase by $7,000. How is the accounting equation affected?
A) Either assets have increased by $7,000, or owner’s equity has decreased by $7,000.
B) Assets have decreased by $7,000.
C) Assets and owner’s equity have each decreased by $3,500.
D) Owner’s equity has increased by $7,000.
17) An individual asset has increased. Which of the following is possible?
A) There is an equal decrease in another asset.
B) There is an equal decrease in owner‘s equity.
C) There is an equal decrease in a liability account.
D) Both liabilities and owner’s equity decrease.
18) Scott’s Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year,
the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no capital contributions
during the year, but did make withdrawals of $60,000.
What is the amount of Scott’s owner‘s equity at the end of the year?
A) $40,000
B) $50,000
C) $30,000
D) $10,000
19) Scott’s Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year,
the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no capital contributions
during the year, but did make withdrawals of $60,000.
What is the amount of Scott’s net income for the year?
A) $50,000
B) $10,000
C) $30,000
D) $40,000
20) Scott’s Camera Shop started the year with total assets of $80,000 and total liabilities of $40,000. During the year,
the business earned revenues of $120,000 and incurred expenses of $70,000. Scott made no capital contributions
during the year, but did make withdrawals of $60,000.
The net change in Scott’s owner’s equity for the year is a:
A) $10,000 decrease.
B) $40,000 increase.
C) $30,000 decrease.
D) $50,000 increase.
21) Net income is $29,000. Beginning capital balance was $34,000. Ending capital balance was $55,000. No capital
contributions were made by the owner during the year. What amount of drawings was made?
A) $18,000
B) $8,000
C) $5,000
D) $60,000
22) Sharon Samson starts a plumbing service named Reliable Waterworks. Selected transactions are described as
follows:
A) Sharon deposits $7,000 into a new checking account for the business, recording the capital contribution.
B) Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C) Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D) Reliable pays $600 rent for the first month.
E) Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F) Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
G) Sharon takes a cash withdrawal of $2,500.
After all of the transactions, what is the amount of total assets?
A) $25,700
B) $5,200
C) $24,200
D) $20,200
23) Sharon Samson starts a plumbing service called Reliable Waterworks. Selected transactions are described as
follows:
A) Sharon deposits $7,000 into a new checking account for the business, recording the capital contribution.
B) Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C) Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D) Reliable pays $600 rent for the first month.
E) Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F) Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
G) Sharon takes a cash withdrawal of $2,500.
After all of the transactions, what is the amount of total liabilities?
A) $15,000
B) $4,000
C) $19,000
D) $4,400
24) Sharon Samson starts a plumbing service named Reliable Waterworks. Selected transactions are described as
follows:
A) Sharon deposits $7,000 into a new checking account for the business, recording the capital contribution.
B) Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C) Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D) Reliable pays $600 rent for the first month.
E) Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F) Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
G) Sharon takes a cash withdrawal of $2,500.
After all of the transactions, what is the amount of total owner’s equity?
A) $5,200
B) $20,200
C) $7,700
D) $7,300
25) Sharon Samson starts a plumbing service named Reliable Waterworks. Selected transactions are described as
follows:
A) Sharon deposits $7,000 into a new checking account for the business, recording the capital contribution.
B) Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C) Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D) Reliable pays $600 rent for the first month.
E) Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F) Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
G) Sharon takes a cash withdrawal of $2,500.
After all of the transactions, what is net income?
A) $700
B) $300
C) $4,500
D) $1,300
26) Sharon Samson starts a plumbing service named Reliable Waterworks. Selected transactions are described as
follows:
A) Sharon deposits $7,000 into a new checking account for the business, recording the capital contribution.
B) Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C) Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D) Reliable pays $600 rent for the first month.
E) Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F) Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
G) Sharon takes a cash withdrawal of $2,500.
After all of the transactions, what is cash balance?
A) $15,800
B) $300
C) $4,500
D) $1,300
27) Following is a list of account balances (except for owner’s capital) of Wilson Mowing Service as of December
31 of the first year of operation:
Accounts receivable
$ 2,500
Accounts payable
3,500
Salary expense
4,500
Repairs expense
800
Truck
8,500
Equipment
6,300
Notes payable
8,200
Cash
6,800
Supplies expense
1,600
Service revenue
31,900
Gasoline expense
3,800
Salary payable
200
The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year; during the year, the proprietor took
$12,000 in drawings.
At the end of the year, what is the amount of total assets?
A) $12,200
B) $24,100
C) $11,900
D) $21,200
28) Following is a list of account balances (except for owner’s capital) of Wilson Mowing Service as of December
31 of the first year of operation:
Accounts receivable
$ 2,500
Accounts payable
3,500
Salary expense
4,500
Repairs expense
800
Truck
8,500
Equipment
6,300
Notes payable
8,200
Cash
6,800
Supplies expense
1,600
Service revenue
31,900
Gasoline expense
3,800
Salary payable
200
The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year: during the year, the proprietor took
$12,000 in drawings.
At the end of the year, what is the amount of total liabilities?
A) $11,900
B) $24,100
C) $21,200
D) $12,200
29) Following is a list of account balances (except for owner’s capital) of Wilson Mowing Service as of December
31 of the first year of operation:
Accounts receivable
$ 2,500
Accounts payable
3,500
Salary expense
4,500
Repairs expense
800
Truck
8,500
Equipment
6,300
Notes payable
8,200
Cash
6,800
Supplies expense
1,600
Service revenue
31,900
Gasoline expense
3,800
Salary payable
200
The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year; during the year, the proprietor made
$12,000 in drawings.
At the end of the year, what is the amount of total owner’s equity?
A) $11,900
B) $24,100
C) $21,200
D) $12,200
30) Following is a list of account balances (except for owner’s capital) of Wilson Mowing Service as of December
31 of the first year of operation:
Accounts receivable
$ 2,500
Accounts payable
3,500
Salary expense
4,500
Repairs expense
800
Truck
8,500
Equipment
6,300
Notes payable
8,200
Cash
6,800
Supplies expense
1,600
Service revenue
31,900
Gasoline expense
3,800
Salary payable
200
The proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year; during the year, the proprietor took
$12,000 in drawings.
At the end of the year, what is net income?
A) $21,200
B) $11,900
C) $12,200
D) $24,100
31) The assets and liabilities of Matt Wesley Auto Shop are as follows: Cash, $10,000; Accounts receivable, $8,200;
Supplies, $1,050; Land, $25,000; Accounts payable, $6,530. What is the amount of owner’s equity?
A) $21,500
B) $44,430
C) $50,780
D) $37,720
32) The total assets and the total liabilities of Ty Williams Financial Services, are shown below. During the year, the
proprietor made no additional capital contributions, and took drawings of $15,000.
Assets
Liabilities
Beginning of year
$395,000
$290,000
End of year
455,000
320,000
What was the amount of net income for the year?
A) $85,000
B) $40,000
C) $45,000
D) $135,000
33) The total assets and the total liabilities of Paragon Services are shown below. During the year, no additional
capital contributions were made, and the business earned net income of $50,000.
Assets
Liabilities
Beginning of year
$395,000
$290,000
End of year
455,000
320,000
What was the amount of drawings taken during the year?
A) $85,000
B) $40,000
C) $45,000
D) $20,000
Learning Objective 1-8
1) A business owner starts a new business and invests $6,000 of capital. This transaction results in an increase in the
business’s liabilities.
2) Tim contributes capital into his business. The two accounts affected are:
A) an asset and a liability.
B) an asset and an equity.
C) a liability and an equity.
D) two asset accounts.
3) Joe purchased office equipment for $1,250 cash. What is the effect on accounts?
A) One asset account increases; one liability account increases.
B) Two asset accounts increase.
C) One asset account increases; another asset account decreases.
D) One asset account increases; one equity account increases.
4) Bill purchased office supplies for $500 cash. What is the effect on accounts?
A) Cash account increases; Accounts payable increases.
B) Cash account increases; Supplies account increases.
C) Supplies account increases; Cash account decreases.
D) Supplies account increases; Owner’s capital account increases.
5) Hamilton Lawn Service earned $1,000 for services rendered and collected cash from its customer. What is the
effect on accounts?
A) Cash account increases; Accounts payable increases.
B) Cash account increases; Accounts receivable increases.
C) Cash account increases; Supplies account decreases.
D) Cash account increases; Owner’s capital account increases.
6) Hamilton Lawn Service earned $1,000 for services rendered. The customer promised to pay at a later time. What
is the effect on accounts?
A) Accounts receivable decreases; Owner‘s capital increases.
B) Cash and Accounts receivable both increase.
C) Cash account increases; Accounts receivable decreases.
D) Accounts receivable increases; Owner‘s capital increases.
7) Hamilton Lawn Service earned $1,000 for services rendered. The customer promised to pay at a later time.
Which of the following accounts increased?
A) Accounts payable
B) Supplies
C) Cash
D) Accounts receivable
8) Hamilton Lawn Service incurred $800 repair expense and paid the repair company in cash. Which account,
besides Cash, decreased?
A) Owner’s capital
B) Accounts payable
C) Common stock
D) Accounts receivable
9) Hamilton Lawn Service incurred $500 labor expense and promised to pay the labor agency within 30 days.
Which account increased?
A) Accounts receivable
B) Cash
C) Accounts payable
D) Owner’s capital