9) Your new firm just purchased a storage building and property for $40,000 that was paid...
9) Your new firm just purchased a storage building and property for $40,000 that was paid for with a $20,000 long-term loan and a new infusion of $20,000 from the owners. Which of the following accounting entries is most appropriate?
A) $40,000 increase in plant, property and equipment, a $20,000 decrease in long-term debt, and a $20,000 decrease in owners equity.
B) $40,000 increase in plant, property and equipment, a $20,000 increase in long-term debt, and a $20,000 increase in owners equity.
C) $40,000 increase in cash and a $40,000 increase in plant, property, and equipment.
D) $40,000 increase in plant, property and equipment and a $40,000 increase in cash.
10) Your new firm is operating in an all-cash environment without taxes. You sold $1,000 of inventory for three times the amount you paid for it. If this was the only transaction, which of the following would most closely match the entries on your income statement?
A) Revenues = $1,000, expenses = $1,000, profit = $0
B) Cash increases by $3,000, inventory decreases by $1,000, and retained earnings increases by $2,000.
C) Revenues = $3,000, expenses = $0, profit = $3,000
D) Revenues = $3,000, expenses = $1,000, profit = $2,000
Homework Answers
9). Option B
Purchase of Building will increase Plant, Property and Building while at the same time the same is financed through Long-term Debt and Owner's equity. This will increase long term with $ 20000 and increase in Owner's equity with $ 20,000.
10) Option D
Since, the question has asked the entries that most closely match the entries on your income statement.
Revenue will be $ 3000( 3 times the cost of $1000) while the cost/Expenses is mentioned be = $1000. Thus profit will be $ 2000.
Option B can be considered if questions asked entries related to balance sheet but since it has asked related to Income Statement Option D is correct.
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