Financial Accounting I
Tutorial-2
Question-1
Use the following information to calculate for the year ended December
31, 2016 (a) net income, (b) ending owner’s equity, and (c) total assets.
Supplies $3,000 Revenues $25,000
Operating expenses 11,000 Cash 15,000
Accounts payable 9,000 Drawings 1,000
Accounts receivable 3,000 Notes payable 2,000
Beginning Capital 5,000 Equipment 8,000
Solution
(a) $14,000 (b) $18,000 (c) $29,000
Question-2
Maria Martinez decides to open a cleaning and laundry service near the local college
campus that will operate as a sole proprietorship. Analyze the following transactions
for the month of June in terms of their effect on the basic accounting equation. Record
each transaction by increasing (+) or decreasing (–) the dollar amount of each item
affected. Indicate the new balance of each item after a transaction is recorded. It is not
necessary to identify the cause of changes in owner's equity.
Transactions
(1) Maria Martinez invests $25,000 in cash to start a cleaning and laundry business on June 1.
(2) Purchased equipment for $5,000 paying $3,500 in cash and the remainder due in 30 days.
(3) Purchased supplies for $1,200 cash.
(4) Received a bill from College Clarion for $200 for advertising in the campus newspaper.
(5) Cash receipts from customers for cleaning and laundry amounted to $2,600.
(6) Paid salaries of $600 to student workers.
(7) Billed the Tiger Tennis Team $480 for cleaning and laundry services.
(8) Paid $200 to College Clarion for advertising that was previously billed in Transaction 4.
(9) Maria Martinez withdrew $1,300 from the business for living expenses.
(10) Incurred utility expenses for month on account, $500 .
Solution
Trans- Accounts Accounts Owner’s
action Cash + Receivable + Supplies + Equipment = Payable + Capital
(1) +$25,000 +$25,000
——————————————————————————————————————————
(2) – 3,500 +$5,000 +$1,500
——————————————————————————————————————————
(3) – 1,200 +$1,200
——————————————————————————————————————————
(4) + 200 – 200
——————————————————————————————————————————
(5) + 2,600 + 2,600
——————————————————————————————————————————
(6) – 600 – 600
——————————————————————————————————————————
(7) +$480 + 480
——————————————————————————————————————————
(8) – 200 – 200
——————————————————————————————————————————
(9) – 1,300 – 1,300
——————————————————————————————————————————
(10) + 500 – 500
——————————————————————————————————————————
Totals $20,800 $480 $1,200 $5,000 $2,000 $25,480
Question-3
1-There are relatively few types of revenue. Which of the following in
NOT a type of revenue?
A) Common Stock
B) Service
C) Interest
D) Sales
Answer: A
2- A promise received from a business's customers to pay for goods
and services that they received from the business is called a(n):
A) Account receivable.
B) Account payable.
C) Revenue.
D) Expense.
Answer: A
3- A $5,000 account payable is paid by the company. How is the
accounting equation affected?
A) Assets decrease $5,000; owner's equity increases $5,000.
B) Assets decrease $5,000; liabilities decrease $5,000.
C) Assets increase $5,000; owner's equity decreases $5,000.
D) Assets increase $5,000; liabilities increase $5,000.
Answer: B
4- 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.
Answer: A
5- 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; stockholders' equity increases $20,000.
D) Assets increase $20,000; assets decrease $20,000.
Answer: D
6- 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
Answer: C
Explanation: C) Calculations: $80,000 - $40,000 + 120,000 - $70,000 -
$60,000 = $30,000
What is the amount of Scott's net income for the year?
A) $50,000
B) $10,000
C) $30,000
D) $40,000
Answer: A
Explanation: A) Calculations: $120,000 - $70,000 = $50,000
7-Hamilton Service Co. incurred a $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) Retained earnings
Answer: C
8) 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
Answer: B
Explanation: B) Calculations: $34,000 + $29,000 - $55,000 = $8,000
9) 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
Answer: D
Explanation: D) Calculations: $10,000 + $8,200 +$1,050 + $25,000 -
$6,530 = $37,720
10) 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.
Answer: B
11) 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.
Answer: C
12) The proprietor of Martin Supply Service took a $5,000 cash
withdrawal. What is the effect of the withdrawal on the accounts of the
business?
A) Cash account decreases; Owner's capital account decreases.
B) Cash account increases; Accounts receivable decreases.
C) Accounts payable increases; Owner's capital account decreases.
D) Cash account increases; Owner's capital account decreases.
Answer: A
13) Beginning owner's capital is $20,000. No capital contributions were
made during the year. Drawings were $7,000. Ending owner's capital is
$37,000. What was net income?
A) $24,000
B) $13,000
C) $10,000
D) $27,000
Answer: A
Explanation: A) Calculations: $37,000 + $7,000 - $20,000 = $24,000
14) Financial statements are prepared after an entity's transactions are
analyzed and recorded. Which of the following reports is NOT one of the
required financial statements?
A) Statement of cash flows
B) Balance sheet
C) Statement of drawings
D) Income statement
Answer: C
15) Which of the following financial statements uses net income or net
loss taken directly from the income statement?
A) Statement of owner's equity
B) Statement of cash flow
C) Balance sheet
D) Statement of expenditures
Answer: A
16) 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
Answer: B
Explanation: B) Calculations: $2,500 + $8,500 + $6,300 + $6,800 =
$24,100
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
Answer: A
Explanation: A) Calculations: $3,500 + $8,200 + $200 = $11,900
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
Answer: D
Explanation: D) Calculations: $24,100 total assets - $11,900 total
liabilities = $12,200
At the end of the year, what is net income?
A) $21,200
B) $11,900
C) $12,200
D) $24,100
Answer: A
Explanation: A) Calculations: $31,900 - $4,500 - $800 - $1,600 - $3,800
= $21,200
