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Exam 2: Analyzing Business Transactions

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Question 1

Multiple Choice

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When equipment is purchased on credit,

A) assets and liabilities increase.
B) assets increase and liabilities decrease.
C) assets and owner's equity increase.
D) assets and expenses increase.

E) A) and C)
F) A) and B)

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Question 2

Multiple Choice

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The financial statement that is prepared first is

A) up to the accountant.
B) the income statement.
C) the balance sheet.
D) the statement of owner's equity.

E) C) and D)
F) B) and D)

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Question 3

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A withdrawal of funds by the owner for personal use is considered a business expense.

A creditor's claim against the firm's property lasts until the debt is paid.

The current worth of an asset is its

The account used to record amounts that are owed for goods or services purchased on credit are known as ___________________.

When cash is collected from accounts receivable, the total amount of assets increases.

On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts: $\begin{array}{ll}\text { Cash } & \text { Accounts Payable } \\\text { Accounts Receivable } & \text { Shawn Dahl, Capital } \\\text { Office Equipment } & \text { Revenue } \\\text { Canoe and Kayak Equipment } & \text { Expenses }\end{array}$ Transactions 1. Shawn Dahl invested $45,000 in cash to open the business 2. Paid $12,700 in cash for the purchase of kayak and canoe equipment 3. Paid $1,050 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $3,800 on credit 5. Received $3,900 in cash for kayak rentals 6. Rented canoes and kayaks for $1,200 on account 7. Purchased office equipment for $125 in cash 8. Received $800 in cash from credit clients 9. Shawn Dahl withdrew $1,500 in cash for personal expenses -Based on the information above, what is the fundamental accounting equation at the end of September for Whitewater Rentals?

Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080.

If liabilities are $4,000 and owner's equity is $15,000, assets are

If there is an excess of expenses over revenues, the excess represents a profit.

When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities and owner's equity.

The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1). $\begin{array}{|c|c|c|c|c|c|c|c|c|c|}\hline \text { Trans } & & \text { Assets } & & = & \text { Liab. } & &&{\text { Owner's Equity }} \\\hline & \text { Cash } & \text { Accts } & \text { Supp } & \text { Equip } & \text { Accts } & & \text { G. Sawyer, } & \text { Rev. } & \text { Expense } \\\hline & & \text { Rec } & & & \text { Pay } & & \text { Capital } & & \\\hline\\\hline 1 & +72,000 & & &&&&+72,000 \\\hline 2 & -8,200 & & & +8,200 \\\hline 3 & & 5,200 & & &&&&+5,200 \\\hline 4 & & & & +3,680 & +3,680 \\\hline 5 & -3,500 & &&&&& & &-3,500 \\\hline 6 & +670 & -670 & & & \\\hline 7 & -2,400 & & & &&&-,400 \\\hline 8 & -450 & & +450 & & \\\hline \text { Bal } & 58,120+ & 4,530+ & 450+ & 11,880= & 3,680 & + & 69,600+ & 5,200+ & -3,500 \\\hline\end{array}$ -Prepare a Balance Sheet for Cullen Consulting Services as of April 1, 2013, before he conducts any services.

The statement of financial position is another term for which financial statement?

In order to analyze the effect of a business transaction one must do all of the following except

Assets always equal debts of the business plus the financial interest of the owner.

Cullen would like an explanation of the accounting for his business actions as of April 1, 2013. Explain the terms and interactions between the categories on a Balance Sheet.

If the income statement covered a six-month period ending on November 30, 2010, the third line of the income statement heading would read

Examples of assets are

When the owner withdraws cash for personal use,