Topic: 01-18 GAAP for Public vs. Private Enterprises
208. Explain the accounting equation, also called the balance sheet equation.
The accounting equation is stated as assets = liabilities + equity. Assets are economic resources controlled by a business. Creditors' claims are called liabilities. The owner's claim to assets is called equity. The accounting equation shows that the ownership of business assets can be shared between creditors and owners.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-21 The Accounting Equation
209. Lionel's Laundry has assets of $90,000 and liabilities of $20,000. Calculate the amount of equity.
$70,000
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
210. Caps Lock has liabilities of $100,000 and $150,000 in equity. What is the value of its assets?
$250,000
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
211. Sheila's Attic has $660,000 in assets and equity of $250,000. What is the amount of its liabilities?
$410,000
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
212. If the liabilities of a business increased $65,000 during a period of time and equity in the business decreased $21,000 during the same period, would the assets of the business have increased or decreased? By what amount?
Assets would have increased $44,000. Assets = Liabilities + Equity+$44,000 = +$65,000 + (-$21,000)
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
213. Select from the following list items that are likely to serve as source documents.
(a) Credit card
(e) Balance sheet
(b) Credit card receipt
(f) Bank statement
(c) Purchase order
(g) Journal entry
(d) Invoice
(h) Electric power bill
(a) No (b) Yes (c) Yes (d) Yes (e) No (f) Yes (g) No (h) Yes
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
214. Explain the difference between a business transaction and a business event.
A business transaction is an exchange of economic consideration between two parties that causes a change in assets, liabilities, or equity. A business event is an activity that does not involve an exchange of economic consideration between two parties, and therefore does not affect the accounting equation.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
215. At the beginning of this year, Tong Company had $160,000 in liabilities and $200,000 in assets. During this year, assets increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during this year. Calculate the beginning and ending values of equity.
Beginning equity = $40,000 Ending equity = $220,000
Assets = Liabilities + Equity
Beginning
$200,000
=$160,000
+$40,000
Change
+160,000
=(20,000)
+180,000
Ending
$360,000
=$140,000
+$220,000
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-22 Transaction Analysis
216. If the liabilities of a business increased $60,000 during a period of time and equity in the business decreased $18,000 during the same period, would the assets of the business have increased or decreased? By what amount?
Assets would have increased $40,000.