Module 1

Question 1

Which of the following is an example of an asset? Select all that apply.

• A) Cash
• B) PP&E
• C) Accounts Payable
• D) Retained Earnings
• E) Accounts Receivable

Answer 1

• A) Cash
• B) PP&E
• E) Accounts Receivable

Question 2

Which of the following is an example of a liability? Select all that apply.

• A) Accounts Receivable
• B) Equipment
• C) Accounts payable
• D) Inventory
• E) Notes payable

Answer 2

• C) Accounts payable
• E) Notes payable

Question 3

Which of the following is an example of owners’ equity?

Select all that apply.

• A) Retained Earnings
• B) Cash
• C) Common stock
• D) Paid-in capital
• E) Notes payable

Answer 3

• A) Retained Earnings
• C) Common stock
• D) Paid-in capital

Question 4

Jennifer Costello made an initial investment of $100,000 in Acorns Bakery. Additionally, Costello’s family loaned Acorns $50,000 to help her get her business started. How would the loan impact the accounting equation? Select all that apply.

• A) Increase cash by $50,000
• B) Increase accounts recievable by $50,000
• C) Increase loans payable by $50,000
• D) Increase owners’ equity by $50,000

Answer 4

• A) Increase cash by $50,000
• C) Increase loans payable by $50,000

Question 5

Suppose Jennifer’s top baker wanted to invest in Acorns and offered to contribute $25,000. How would this impact the accounting equation? Select all that apply.

• A) Increase owners’ equity
• B) Increase loans payable by $25,000
• C) Increase cash by $25,000
• D) Increase inventory by $25,000

Answer 5

• A) Increase owners’ equity
• C) Increase cash by $25,000

Question 6

Suppose Acorns needed more mixing machines in its kitchen. It bought two mixing machines for a total of $1,400 in cash. How would this impact the accounting equation? Select all that apply.

• A) Increase cash by $1,400
• B) Increase PP&E by $1,400
• C) Decrease cash by $1,400
• D) Increase owners’ equity by $1,400

Answer 6

• B) Increase PP&E by $1,400
• C) Decrease cash by $1,400

Question 7

BB Bookstore purchased 200 copies of a book from a publisher for $2,000, and it paid cash to complete the transaction. How will this transaction impact the accounting equation? Select all that apply.

• A) Increase inventory by $2,000
• B) Increase owners’ equity by $2,000
• C) Decrease cash by $2,000
• D) Decrease accounts payable by $2,000

Answer 7

• A) Increase inventory by $2,000
• C) Decrease cash by $2,000

Question 8

Suppose DSW sells a pair of boots to a customer for $75. How would the cash impact the inflow and revenue from this sales impact the accounting equation? Please select all that apply.

• A) Cash increases by $75
• B) Owners’ Equity increases by $75
• C) Accounts payable increases by $75
• D) Cash decreases by $75

Answer 8

• A) Cash increases by $75
• B) Owners’ Equity increases by $75

Question 9

Acorn purchases boxes of truffles for $15 from CHO and sells them to customers. How would the transfer of inventory to the customer and the expense of the sale impact the accounting equation? Select all that apply.

• A) Inventory decreases by $15
• B) Owners’ equity increases by $15 to recognize revenue
• C) Cash increases by $15
• D) Owner’s equity decreases to recognize COGS

Answer 9

• A) Inventory decreases by $15
• D) Owner’s equity decreases to recognize COGS

Question 10

Suppose the boots DSW sold to the customer for $75 were purchased from DSW’s supplier for $30 in cash and recorded as inventory. How would the cost of the boots sold impact the accounting equation? Select all that apply.

• A) Inventory decreases by $75
• B) Inventory decreases by $30
• C) Cash decreases by $30
• D) Cash decreases by $75
• E) Retained earnings decreases by $30
• F) Retained earnings decrease by $75

Answer 10

• B) Inventory decreases by $30
• E) Retained earnings decreases by $30

Question 11

Suppose BB Bookstore bought 20 history books from a teacher for $1,000 in cash and sold them for $1,500 in cash to a community center. What is the net impact of these transactions on Borders’ accounting equation? Please select all that apply.

• A) Inventory increases by $500
• B) Cash increases by $500
• C) COGS decreases by $1,000
• D) Retained earnings decreases by $1,000
• E) Retained earnings increases by $500

Answer 11

• B) Cash increases by $500
• E) Retained earnings increases by $500

Question 12

Suppose Coca-Cola bought 10,000 mangos for $20K from a farmer on 1/1/14. Coca-Cola had 30 days to pay the farmer. How would this transaction affect Coca-Cola’s accounting equation on 1/1/14?

• A) Accounts receivable increases by $20K
• B) Accounts payable increases by $20K
• C) Owners’ equity decreases by $20K
• D) Inventory increases by $20K
• E) Inventory decreases by $20K

Answer 12

• B) Accounts payable increases by $20K
• E) Inventory decreases by $20K

Question 13

Suppose Coca-Cola bought 10,000 mangos for $20K from a farmer on 1/1/14. Coca-Cola had 30 days to pay the farmer. It paid the farmer on 1/31/14. How would this payment affect Coca-Cola’s accounting equation on 1/31/14?

• A) Accounts payable increases by $20K
• B) Accounts payable decreases by $20K
• C) Cash increases by $20K
• D) Cash decreases by $20K
• E) Owners’ equity decreases by $20K

Answer 13

• B) Accounts payable decreases by $20K
• D) Cash decreases by $20K

Question 14

Suppose Coca-Cola bought a new bottling machine for $9,000 on 3/1/14. It paid the manufacturer on 4/30/14. How would this payment affect Coca-Cola’s accounting equation on 3/1/14?

• A) Accounts receivable increases by $9,000
• B) Accounts payable increases by $9,000
• C) Inventory increases by $9,000
• D) Cash increases by $9,000
• E) Equipment increases by $9,000

Answer 14

• B) Accounts payable increases by $9,000
• E) Equipment increases by $9,000

Question 15

Suppose Coca-Cola bought a new bottling machine for $9,000 on 3/1/14. It paid the manufacturer on 4/30/14. How would this payment affect Coca-Cola’s accounting equation on 4/30/14?

• A) Accounts payable decreases by $9,000
• B) Equipment decreases by $9,000
• C) Cash decreases by $9,000
• D) Expenses increases by $9,000

Answer 15

• A) Accounts payable decreases by $9,000
• C) Cash decreases by $9,000

Question 16

Suppose Acorns sold five truffle boxes to a customer for $25 each. The boxes were purchased from CHO for $15 each and were held in inventory. The customer has 30 days to pay for the order after receiving it. How will the recognition of the receivable and revenue for the transaction impact the accounting equation at the time of the sale to the customer? Please select all that apply.

• A) Accounts receivable increases by $125
• B) Owner’s equity increases by $75
• C) Accounts receivable increases by $75
• D) Owner’s equity increases by $125

Answer 16

• A) Accounts receivable increases by $125
• D) Owner’s equity increases by $125

Question 17

Acorns needs to recognize the expense for the cost of goods sold for $25 ($15*5). How will that recognition impact the accounting equation? please select all that apply.

• A) Inventory decreases by $75
• B) Inventory increases by $75
• C) Accounts payable increases by $75
• D) Owner’s equity decreases by $75

Answer 17

• A) Inventory decreases by $75
• D) Owner’s equity decreases by $75

Question 18

Acorns receives payment from the customer 20 days after the initial purchase. How would the accounting equation be impacted when the payment is received? Please select all that apply.

• A) Accounts receivable increases by $125
• B) Cash increases by $125
• C)Owner’s equity increase by $125
• D) Accounts receivable decreases by $125

Answer 18

• B) Cash increases by $125
• D) Accounts receivable decreases by $125

Question 19

SG offers personal training sessions for its members. It costs $125 for 5 sessions. Suppose a member prepaid for the personal training sessions in January and had 6 months to use them. The member didn’t start his sessions in January and met with the personal trainer twice in February. How would this be recorded on the financial statements of SG? Select all that apply.

• A) January: Assets increase by $125
• B) January: Liabilities increase by $125
• C) January: Owners’ equity increases by $125
• D) February: Owners’ equity increases by $50
• E) February: Liabilities decrease by $50
• F) February: Owners’ equity increases by $125

Answer 19

• A) January: Assets increase by $125
• B) January: Liabilities increase by $125
• D) February: Owners’ equity increases by $50
• E) February: Liabilities decrease by $50

Question 20

SG’s 10-class punch card expires 6 months after the first class was taken. Suppose Estelle bought the $100 card in March and took 8 classes that month. In April, she broke her leg and stopped working out. When should SG recognize the revenue?

• A) Recognize $16.66 ($100/6) of revenue at the end of each month from March until August
• B) Recognize $80 of revenue at the end of March and $20 of revenue at the end of August
• C) Recognize $100 of revenue at the end of March
• D) Recognize $100 of revenue at the end of August

Answer 20

• B) Recognize $80 of revenue at the end of March and $20 of revenue at the end of August

Question 21

Suppose Acorns sells a $50 gift card to a customer. How will this affect the accounting equation at the time of the sale? Please select all that apply.

• A) Increase inventory by $50
• B) Increase cash by $50
• C) Increase owner’s equity by $50
• D) Increase liabilities by $50

Answer 21

• B) Increase cash by $50
• D) Increase liabilities by $50

Question 22

A customer purchases $25 of baked goods from Acorns using a gift card. It costs Acorns $10 to make these goods. What will the impact of the sales and the expense on the accounting equation for Acorns? Please select all that apply.

• A) Cash decrease by $25
• B) Owner’s equity increases by $25 to recognize revenue
• C) Obligation to provide goods decreases by $25
• D) Cash increases by $25
• E) Inventory decreases by $10
• F) Owner’s equity decreases by $10 to recognize COGS

Answer 22

• B) Owner’s equity increases by $25 to recognize revenue
• C) Obligation to provide goods decreases by $25
• E) Inventory decreases by $10
• F) Owner’s equity decreases by $10 to recognize COGS

Question 23

Suppose Coca-Cola purchased insurance on a fleet of delivery trucks. It paid $30K on 1/1/14 for a year of insurance. How would this transaction impact Coca-Cola’s accounting equation? Please select all that apply.

• A) Decrease cash by $30K
• B) Decrease accounts receivable by $30K
• C) Increase prepaid insurance by $30K
• D) Decrease owners’ equity by $30K

Answer 23

• A) Decrease cash by $30K
• C) Increase prepaid insurance by $30K

Question 24

What will be the impact on the accounting equation each month, when the prepaid insurance expense is recognized? Please select all that apply.

• A) Decrease cash by $2.5K
• B) Decrease owner’s equity by $2.5K
• C) Decrease prepaid insurance by $2.5K
• D) Increase prepaid insurance by $2.5K

Answer 24

• B) Decrease owner’s equity by $2.5K
• C) Decrease prepaid insurance by $2.5K

Question 25

Accounting standards require a business to choose measurement methods that anticipate and record future losses, but not future gains. What principle is this?

Answer 25

Conservatism