Homework #1

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1. Which of the following is a required 巛듘nancial statement?

Incorrect Response 

The Statement of Revenues and Expenditures sounds like the

Income Statement, except that the Income Statement has

Expenses, not Expenditures.

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Statement of Assets and Liabilities

Statement of Tangible Equity

Statement of Auditor Independence

Statement of Cash Flows

Statement of Revenues and Expenditures

2. 

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2. Which of the following is an asset? (check all that apply)

Correct Response 

Prepaid Rent is an asset.

Incorrect Response 

Common Stock is Stockholders' Equity

Incorrect Response 

Retained Earnings is Stockholders' Equity

Incorrect Response 

Notes Payable is a Liability.

Correct Response 

Cash is an asset.

Prepaid Rent

Common Stock

Retained Earnings

Notes Payable

Cash

3. 

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What are Ending Retained Earnings in the table below?

Total Assets 300

Total Liabilities 120

Total Stockholder's Equity

Beginning Retained Earnings 30

Ending Retained Earnings ?

Dividends 10

Revenues 190

Expenses 140

Net Income

Cash 50

Correct Response 

Net Income = Revenues – Expenses

=> 190 – 140 = 50;

Ending Retained Earnings = Beginning Retained Earnings + Net

Income – Dividends

=> End RE = 30 + 50 – 10

=> End RE = 70

Not enough information

50

-20

70

20

4. Which of the following transactions violates the balance sheet

equation? (check all that apply)

Correct Response 

All of these transactions would violate the balance sheet

equation: Cash + Non-Cash Assets = Liabilities + Contributed

Capital + Prior Retained Earnings + Revenues - Expenses -

Dividends

Correct Response 

All of these transactions would violate the balance sheet

equation: Cash + Non-Cash Assets = Liabilities + Contributed

Capital + Prior Retained Earnings + Revenues - Expenses -

Dividends

Correct Response 

All of these transactions would violate the balance sheet

equation: Cash + Non-Cash Assets = Liabilities + Contributed

Capital + Prior Retained Earnings + Revenues - Expenses -

Dividends

Correct Response 

All of these transactions would violate the balance sheet

equation: Cash + Non-Cash Assets = Liabilities + Contributed

Capital + Prior Retained Earnings + Revenues - Expenses -

Dividends

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Increase a liability and increase a revenue

Increase retained earnings and increase a liability

Increase an expense and reduce a liability

Reduce cash and reduce an expense

Increase cash and reduce contributed capital

Correct Response 

All of these transactions would violate the balance sheet

equation: Cash + Non-Cash Assets = Liabilities + Contributed

Capital + Prior Retained Earnings + Revenues - Expenses -

Dividends

5. Which of the following are liabilities? (check all that apply)

Incorrect Response 

Stockholders' Equity

Incorrect Response 

Asset

Incorrect Response 

Stockholders' Equity

Correct Response 

Liability

Incorrect Response 

Employment Contracts are not liabilities because there is no

obligation based on bene巛듘ts already received.

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Retained Earnings

Prepaid Rent

Common Stock

Salaries Payable

Employment Contracts

6. Which of the following accounts would be increased with a Debit?

(check all that apply)

Correct Response 

Debit balance

Correct Response 

Debit balance

Incorrect Response 

Credit balance

Correct Response 

Debit balance

Correct Response 

Debit balance

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Prepaid Insurance

Advertising Expense

Accounts Payable

Land

Cash

7. 

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7. Which of these journal entries represent paying cash to reduce a

liability? (check all that apply)

Incorrect Response 

Both parts of the entry are incorrect.

Correct Response 

A correct entry must debit a liability and credit cash. This is

correct!

Incorrect Response 

Both parts of the entry are incorrect.

Incorrect Response 

The Dr. to Retained Earnings is incorrect

Incorrect Response 

The Dr. to Land is incorrect

Dr.  Cash               300

     Cr.  Accounts Payable     300

Dr. Income Taxes Payable       500

    Cr.      Cash                                  500

Dr. Cash                   1000

    Cr.   Notes Payable          1000

Dr. Retained Earnings     500

     Cr.  Cash                         500

Dr.  Land           100

    Cr.  Cash           100

8. Which journal entry re�ects the following transaction?:

BOC bought a $300,000 building with $50,000 cash and a mortgage

taken from a bank.

Correct Response 

We must debit building to increase the asset, credit cash to

reduce it, and credit mortgage payable to recognize the liability

for the di耀⬀erence between the purchase price and the cash

paid.

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Dr.  Building           300,000

      Cr.  Mortgage      250,000

      Cr.  Cash              50,000

Dr.  Mortgage      250,000

Dr.  Cash              50,000

        Cr.  Building           300,000

Dr.  Cash              50,000

        Cr.  Building           300,000

Dr.  Building           300,000

      Cr. Cash                 50,000

Dr.  Building           300,000

      Cr. Cash                 300,000

9. 

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9. Which journal entry re�ects the following transaction?:

BOC bought a $75,000 piece of equipment with cash.

Correct Response 

The correct debit is to increase Equipment, not Inventory (since

we are not buying the equipment to resell at a pro巛듘t). We

credit cash to reduce it.

Dr.  Prepaid Expense    75,000

    Cr. Cash                       75,000

Dr. Inventory         75,000

   Cr.  Cash                 75,000

Dr.  Cash     75,000

   Cr.  Equipment    75,000

Dr. Cash      75,000

   Cr.  Inventory     75,000

Dr. Equipment     75,000

   Cr.  Cash           75,000

10. Which journal entry re�ects the following transaction?:

BOC paid $3,000 upfront for next year's rent.

Correct Response 

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Dr.  Prepaid Rent            3,000

    Cr.   Cash                      3,000

We need to create (debit) an asset called Prepaid Rent since

this is a future bene巛듘t, not a current cost. Cash is credited to

reduce it.

Dr.  Cash             3,000

    Cr.  Rent Expense      3,000

Dr. Rent Expense        3,000

   Cr.  Cash                     3,000

Dr.  Rent Revenue       3,000

    Cr. Cash                       3,000

Dr.  Cash                 3,000

    Cr. Prepaid Rent         3,000