Analyzing Transactions and Their Effects on Financial Statements 2 – 9
27. The effect of this transaction in the accounting records would be
a) + $75,000 revenue = + $25,000 cash + $50,000 accounts receivable.
b) + $50,000 net income = + $50,000 assets.
c) + $25,000 revenue = + $25,000 cash.
d) + $75,000 revenue = + $75,000 accounts receivable.
28. The effect on the Statement of Financial Position equation for this transaction would
be
a) + $25,000 cash = – $50,000 accounts payable + $75,000 retained earnings.
b) + $25,000 cash – $50,000 accounts receivable = $75,000 retained earnings.
c) + $25,000 cash + $50,000 accounts receivable = + $75,000 retained earnings.
d) + $25,000 cash = + $25,000 retained earnings.
29. On July 1, 2017 Albacore Company paid $5,200 for a 1-year insurance policy. To
record this transaction Albacore Company should
a) decrease cash and increase insurance expense.
b) decrease cash and increase prepaid insurance.
c) increase accounts payable and increase insurance expense.
d) increase cash and increase prepaid insurance.
30. How is cash invested by shareholders in exchange for shares initially recorded in the
accounting records?
a) as an increase in retained earnings, and an increase in cash
b) as an increase in long-term investments, and a decrease in cash
c) as an increase in common shares, and a decrease in cash
d) as an increase in common shares, and an increase in cash
31. The following costs are initially expressed as assets but are then reclassified as
expenses when they are used up, EXCEPT for the following:
a) inventory.
b) prepaid insurance.
c) prepaid rent.
d) short term investments.
32. A new company signed a lease for office space during their first month of business.
At that time they paid a total of $12,000 for first and last months’ rent. At the end of the
first month, the effect on the financial statements would be
a) $12,000 rent expense.
b) $6,000 rent expense and $6,000 prepaid rent on the Statement of Financial Position.
c) $12,000 prepaid rent on the Statement of Financial Position.
d) Nothing recorded because the company has not made any sales yet.
33. A company paid $22,000 for goods it had purchased last month for resale. What is