Question

1) Using check marks, identify the financial statement(s) on which each of the following items / accounts appear.

Item	Income Statement	Shareholders’ Equity	Balance Sheet
			Asset	Liability	Shareholder Equity
Sales Revenue
Unearned Revenue
Notes Payable
Retained Earnings
Accounts Receivable
Income Tax Expense
Pre-paid Rent
Land
Cash
Dividends

2)   Circle the one correct answer for each of the following two statements:

At the end of Celebrity Imports’ first year of operations, assets are $750,000 and owners' equity is $680,000.

a.       The business’ liabilities are $70,000.

b.      The owner must have invested $750,000 to start the business.

c.        The business’ liabilities are $1,430,000.

d.       The business must be operating profitably.

A company pays back $1 million on a loan it had received earlier from a bank,

a.         Assets are unchanged, liabilities and stockholders' equity both increased by $1 million.

b.         Assets are unchanged, liabilities increase by $1 million, contributed capital decreases by $1 million.

c.         Assets decrease by $1 million, liabilities are unchanged, contributed capital decreases by $1 million.

d.         Assets decrease by $1 million, liabilities decrease by $1 million, stockholders' equity is unchanged.

Answer 1

Item Income Statement Shareholders' Equity Balance Sheet Shareholder Liability Equity Asset Sales Revenue Unearned Revenue Notes Payable Retained Earnings Accounts Receivable Income Tax Expense Pre-paid Rent Land Cash Dividends Notes: All the revenues and expenses appears in the income statement All the assets , liabilities and retained earnings appears in balance sheet. Dividends appears in the statement of Shareholder's equity.

Answer: a. The business liabilities are $ 70000. Accounting equation as follows Total Assets = Total liabilities + Owner's equity $ 750000 = liabilities + $ 680000 Liabilities = $ 750000 - $ 680000 Liabilities = $ 70000 Answer:d. Assets decrease by $1 million, liabilities decrease by $1 million, stockholders' equity is unchanged. Due to repayment of loan, cash (i.e asset ) decreases and loan (i.e liability ) also decreases. Repayment of loan doesn't have any impact on stockholder's equiy.