KA2e_SelfStudy_Ch03

KA2e_SelfStudy_Ch03 - File: ch03, Chapter 3: The Accounting...

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File: ch03, Chapter 3: The Accounting Information System Multiple Choice 1. The effects on the basic accounting equation of performing services for cash are to: a) increase assets and decrease stockholders’ equity. b) increase assets and increase stockholders’ equity. c) increase assets and increase liabilities. d) increase liabilities and increase stockholders’ equity. Ans: b Response A: When services are performed for cash, assets are increased and stockholders’ equity is increased, not decreased. Response B: Correct! Response C: When services are performed for cash, assets are increased and stockholders’ equity is increased. Liabilities are not affected. Response D: When services are performed for cash, assets are increased and stockholders’ equity is increased. Liabilities are not affected. 2. Genesis Company buys a $900 machine on credit. This transaction will affect the: a) income statement only. b) balance sheet only. c) income statement and retained earnings statement only. d) income statement, retained earnings statement, and balance sheet. Ans: b Response A: When equipment is purchased on credit, assets are increased and liabilities are increased. Since assets and liabilities are reported on the balance sheet, this transaction affects only the balance sheet. The income statement is not affected. Response B: Correct! Response C: When equipment is purchased on credit, assets are increased and liabilities are increased. Since assets and liabilities are reported on the balance sheet, this transaction affects only the balance sheet. Neither the income statement nor the retained earnings statement is affected. Response D: When equipment is purchased on credit, assets are increased and liabilities are increased. Since assets and liabilities are reported on the balance sheet, this transaction affects only the balance sheet. Neither the income statement nor the retained earnings statement is affected. 3. Which statement about an account is
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KA2e_SelfStudy_Ch03 - File: ch03, Chapter 3: The Accounting...

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