1.

If expenses are paid in cash, then

a. assets will increase.
b. liabilities will decrease.
c. owner's equity will increase.
d. assets will decrease.

2.If an owner makes a withdrawal of cash from a proprietorship, then

a. there has been a violation of accounting principles.
b. owner's equity will increase.
c. owner's equity will decrease.
d. there will be a new liability showing the owner owes money to the business.

3.If supplies that have been purchased are used in the course of business, then
a. a liability will increase.
b. an asset will increase.
c. owner's equity will decrease.
d. owner's equity will increase.

4.As of December 31, 2014, Calexico Company has assets of $42,000 and owner's equity of
$20,000. What are the liabilities for Calexico Company as of December 31, 2014?
a. $22,000.
b. $20,000.
c. $42,000.
d. $62,000.

5.Net income results when

a. Assets > Liabilities.
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues < Expenses.

6.A balance sheet shows

a. revenues, liabilities, and owner's equity.
b. expenses, drawings, and owner's equity.
c. revenues, expenses, and drawings.
d. assets, liabilities, and owner's equity.

7.Teamboo Company’s owner’s equity at the beginning of August 2014 was $750,000. During
the month, the company earned net income of $175,000 and owner’s drawings were $75,000.
At the end of August 2014, what is the balance in owner’s equity?
 a. $675,000
b. $750,000
c. $825,000
d. $850,000

8.On January 1, 2014, Cat Power Company reported owner’s equity of $705,000. During the
year, the owner withdrew cash of $30,000. At December 31, 2014, the balance in owner’s equity
was $825,000. What amount of net income or net loss would the company report for 2014?
a. Net loss of $30,000
b. Net income of $90,000
c. Net income of $120,000
d. Net income of $150,000

9.Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000.
During the year, the business recorded $48,000 in catering revenues and $30,000 in
expenses. Stahl made an additional investment of $9,000 and withdrew cash of $15,000
during the year. The owner’s equity at the end of the year was
a. $33,000.
b. $54,000.
c. $57,000.
d. $63,000.

10.During the year 2014, Dilego Company earned revenues of $90,000, had expenses of
$56,000, purchased assets with a cost of $10,000 and had owner drawings of $6,000. Net
income for the year is
a. $18,000.
b. $24,000.
c. $28,000.
d. $34,000.

11.At October 1, Arcade Fire Enterprises reported owner’s equity of $70,000. During October,
the owner made additional investments of $4,000 and the company earned net income of
$14,000. If owner’s equity at October 31 totals $80,000, what amount of owner drawings were
made during the month?
a. $0
b. $4,000
c. $8,000
d. $10,000

12.Which of the following is not part of the accounting process?

a. Recording
b. Identifying
 c. Financial decision making
d. Communicating

13.The first part of the accounting process is

a. communicating.
b. identifying.
c. processing.
d. recording.

Exercise One

Balance sheet amounts as of December 31, 2014 for Matt Pond's Learning Service are listed
below. Prepare a balance sheet in good form.
Accounts Payable $ 400
Accounts Receivable 1,000
Cash 300
Owner’s Capital ?

Exercise Two

Identify whether the following items would be reported on the income statement (IS) or balance
sheet (BS).
1. Cash
2. Service Revenue
3. Notes Payable
4. Interest Expense
5. Accounts Receivable

Use the following information to calculate for the year ended December 31, 2014 (a) net
income, (b) ending owner’s equity, and (c) total assets.

Supplies $ 3,000 Revenues $25,000

Operating expenses 12,000 Cash 15,000
Accounts payable 9,000 Drawings 1,000
Accounts receivable 3,000 Notes payable 1,000
Beginning Capital 5,000 Equipment 6,000

Exercise Three
Listed below in alphabetical order are the balance sheet items of Madjack Company at
December 31, 2014. Prepare a balance sheet and include a complete heading.
 Accounts payable $ 21,000
Accounts receivable 15,000
Buildings 91,000
Cash 6,000
Equipment 17,000
Owner’s Capital 108,000

Exercise Four
Analyze the transactions of a business organized as a proprietorship described below and
indicate their effect on the basic accounting equation. Use a plus sign (+) to indicate an increase
and a minus sign (–) to indicate a decrease.

Assets = Liabilities + Owner's Equity

1. Received cash for services rendered. ________ ________ ________

2. Purchased office equipment on credit. ________ ________ ________
3. Paid employees' salaries. ________ ________ ________
4. Received cash from customer in payment
on account. ________ ________ ________
5. Paid telephone bill for the month. ________ ________ ________
6. Paid for office equipment purchased in
transaction 2. ________ ________ ________
7. Purchased office supplies on credit. ________ ________ ________
8. Owner withdrew cash for personal
expenses. ________ ________ ________
9. Obtained a loan from the bank. ________ ________ ________
10. Billed customers for services rendered. ________ ________ ________

Exercise Five
For each of the following, indicate whether the transaction increased (+), decreased (-), or had
no effect (NE) on assets, liabilities, and owner's equity using the following format.
Assets = Liabilities + Owner's Equity

1. Made an investment to start the business.

2. Billed customers for services performed.
3. Purchased equipment on account.
4. Withdrew cash for personal use.
5. Paid for equipment purchased in 3. above.

Exercise six
Neko Case 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) Neko Case invests $20,000 in cash to start a cleaning and laundry business on June 1.
(2) Purchased equipment for $5,000 paying $3,000 in cash and the remainder due in 30
days.
(3) Purchased supplies for $1,200 cash.
(4) Received a bill from College News for $300 for advertising in the campus newspaper.
(5) Cash receipts from customers for cleaning and laundry amounted to $2,400.
(6) Paid salaries of $600 to student workers.
(7) Billed the Lion Soccer Team $450 for cleaning and laundry services.
(8) Paid $300 to College News for advertising that was previously billed in Transaction 4.
(9) Neko Case withdrew $1,500 from the business for living expenses.
(10) Incurred utility expenses for month on account, $500.

Trans- Accounts Accounts Owner’s

action Cash + Receivable + Supplies + Equipment = Payable + Capital
(1)
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Balance
(2)
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Balance
(3)
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Balance
(4)
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Balance
(5)
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Balance
(6)
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Balance
(7)
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Balance
(8)
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Balance
(9)
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Balance
(10)
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Totals