Question

An example of an adjusting entry would include:

	a.	Closing revenues to retained earnings
	b.	Purchase of office supplies on account (and remain unused).
	c.	Interest owed on borrowed amounts.
	d.	Collection of cash from customers.
	e.	Dividend payments to stockholders.

A company had the following transactions:

1. Receive cash in advance from customers, $400.

2. Provide services to customers on account, $500.

3. Pay cash for maintenance costs in the current period, $100.

4. Incur (but do not pay) workers’ salaries in the current period, $200.

Calculate accrual-basis net income from these transactions.

	a.	$600
	b.	$300
	c.	$400
	d.	$500
	e.	$200

When a company pays cash for supplies, the accounting equation would be affected as follows:

	a.	Liabilities increase
	b.	Stockholders’ equity decreases
	c.	Expenses increase
	d.	Assets decrease
	e.	The account equation is unaffected.

Which of the following transactions affects the balance of retained earnings in the current period?

	a.	Receive cash from stock issued to owners.
	b.	Pay salaries for the current period.
	c.	Purchase supplies in the current period.
	d.	Receive cash in advance from customers.
	e.	Repay borrowing from the bank.

On July 15, the company provided services to a customer on account. Then, on August 12, the company collected cash on account from that customer. What is the impact on the company’s accounting equation from the collection of cash on August 12?

	a.	Assets increase and liabilities decrease
	b.	No net effect to the accounting equation
	c.	Assets decrease and liabilities decrease
	d.	Liabilities increase and assets decrease
	e.	Assets increase and owners’ equity increases

A company has the following transactions:

1. Receive cash from bank borrowing.

2. Provide services to customers for cash.

3. Receive cash in advance from customers for services to be provided later.

4. Provide services to customers on account.

5. Receive cash from customers for services provided earlier.

How many of these transactions result in a revenue being reported in the current period?

	a.	5
	b.	3
	c.	1
	d.	4
	e.	2

Answer 1

Solution 1:

An example of an adjusting entry would include "Interest owed on borrowed amounts."

Hence option c is correct.

Solution 2:

Accrual basis net income = Revenue - Maintenance cost - Worker's salary = $500 - $100 - $200 = $200

Hence option e is correct.

Solution 3:

When a company pays cash for supplies "The account equation is unaffected."

hence option e is correct.

Solution 4:

"Pay salaries for the current period"  transactions affects the balance of retained earnings in the current period

Hence option b is correct.

Solution 5:

No net effect to the accounting equation for collection of cash from customer as one asset will increase and other asset will decrease.

Hence option b is correct.

Solution 6:

Transaction 2 and transaction 4  result in a revenue being reported in the current period.

Hence option e is correct.