Financial Accounting 9th Edition by Miller-Nobles Test bank

Liabilities increase; owners' equity decreases.

Assets increase; liabilities increase.

Answer: C
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

34. A business settles a liability by making a payment with cash. How does paying this liability affect the accounting equation?

1. Assets decrease; liabilities decrease.
2. Assets increase; liabilities increase.
3. Assets increase; liabilities decrease.
4. Liabilities decrease; owners' equity increases.

Answer: A
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

35. A proprietor makes a cash withdrawal from the proprietorship. How does this affect the accounting equation?

1. Assets decrease; owners' equity increases.
2. This has no effect on assets, liabilities or owners' equity.
3. Assets increase; liabilities decrease.
4. Assets decrease; owners' equity decreases.

Answer: D
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

36. Equipment is sold for cash in an amount equal to the cost of the equipment recorded on the books. How does this sale affect the accounting equation?

1. One asset increases; one asset decreases.
2. Assets increase; owners' equity increases.
3. Assets increase; liabilities increase.
4. Assets increase; liabilities decrease.

Answer: A
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

37. The business receives cash from a customer that is owed to the company 'on account', based on services rendered to the customer previously. How does the collection of the cash affect the accounting equation?

1. One asset increases; one asset decreases.
2. Assets increase; owners' equity increases.
3. Assets increase; liabilities increase.
4. Assets decrease; owners' equity decreases.

Answer: A
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

38. Ace Ltd had the following transactions in June: sold goods for $2000 on account; received cash on account, $4000; paid $600 for repair expense; paid $2000 to a supplier that it owed from the previous month. What is the combined effect on Cash of the June transactions?

1. a $1400 increase
2. a $1400 decrease
3. a $2600 decrease
4. a $4000 increase

Answer: A
Difficulty: Complex
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

39. Venus Ltd paid $10,000 for an account payable. How does this transaction affect the accounting equation of Venus?

1. assets decrease by $10,000 and equity increases by $10,000
2. assets increase by $10,000 and liabilities increase by $10,000
3. assets increase by $10,000 and equity decreases by $10,000
4. assets decrease by $10,000 and liabilities decrease by $10,000

Answer: D
Difficulty: Moderate
AACSB: Analytical Thinking
Learning Objective: 3 Use the accounting equation to analyse transactions
A-Head: How do you analyse transactions?

40. Land is purchased by a business for $140,000. The company pays for the land by a cash payment of $24,000 and promised to pay the remaining amount at a later period. What is net effect of this transaction on the business's accounting equation?