Question

14) Mitchell Company receives a bill from one of its suppliers for advertising services received and will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of Mitchell? A) assets and equity decrease B) liabilities increase and equity decreases C) assets and liabilities increase D) liabilities and equity increase -3- 15. Country Homes Company just recorded a transaction in its books. If this transaction increased the total liabilities by $12.000, then A) assets must increase, or equity must decrease by $12.000 B) either assets or equity must decrease by $12.000 C) both assets and equity must each decrease by $6,000 D) assets must decrease by $12.000 16 Springer Company, a sole proprietorship, and the following transactions in August Earned 55.000 of revenues on account, collected $500 from a customer for services provided last month incurred $500 of repair expense and paid cash paid 5600 for rent that it owed from the previous month What is the net income in August? A) 5500 C) 9.500

Answer 1

Solution 14) Receipt of the bill from the supplier for advertisement expense shall affect the following accounts: a) Debit - Advertising expense account b) Credit - accounts payable-advertisement supplier payment to be made in next month) Increase in advertisement expense shall reduce equity and, increase in accounts payable shall increase liabilities therefore, option B is correct. i.e., liabilities increase and equity decreases solution 15) if a transaction results in increase the total liabilities, then, assets must increase or equity must decrease for e.g., suppose ABC company taken bank loan of $ 12000 then, cash account increase ( being an asset account) and, bank loan account increase ( being a liability account) therefore, option A is correct. i.e., asset must increase or equity must decrease by $12,000