CHAPTER 3

Question 1

All the processes in an accounting system must observe the equality of the accounting equation.

Answer 1

True

Question 2

The basic accounting equation is Assets + Liabilities = Equity.

Answer 2

False

Assets = Liabilities + Equity

Question 3

The terms ‘economic resource’ and ‘present obligation’ refer to ‘income’ and ‘expenses,’ respectively.

Answer 3

False

Assets and liabilities respectively

Question 4

When determining the existence of an asset, legal ownership is always a necessary factor to consider.

Answer 4

False

Not always a necessary

Question 5

Control is an essential aspect in the definition of an asset. Control means legal ownership.

Answer 5

False

Question 6

An entity controls an economic resource if it has the exclusive reight to enjoy the economic benefits from the resource, including the ability to prevent others from enjoying those benefits.

Answer 6

True

Question 7

A property that you do not have the right to use, sell, lease, transfer, or other similar rights may not be your asset, even if you are the legal owner of that property.

Answer 7

True

Question 8

Legal obligations arise only from law.

Answer 8

False

Question 9

A present oligation can result from a future event.

Answer 9

False

Past event

Question 10

Equity is defined as a residual amount - being the difference between total assets and total liabilities.

Answer 10

True

Question 11

Income is defined as increases in assets or decrease in liabilities that result in an increase in equity, other than those that relate to contributions by the business owner(s).

Answer 11

True

Question 12

Both the definitions of income and expenses encompass changes in assets and liabilities but excluding those changes that relate the business owner’s investments to, or withdrawals from the business.

Answer 12

True

Question 13

You own a business. Your business lacks capital so you provided additional cash. This transaction would result to income by your business.

Answer 13

False

Investment

Question 14

The difference between income and expenses is profit or loss. There is profit if income exceeds expenses.

Answer 14

True

Question 15

Physical possession is a necessary condition in order for control over an asset to exist.

Answer 15

False

Question 16

An economic resource can produce economic bnefits in many ways, including the potential of the resource to provide the entity, directly or indirectly, with cash.

Answer 16

True

Question 17

The settlement of a liabiity requires the transfer of an economic resource.

Answer 17

True

Question 18

An intention to obtain control over an economic resource at a future time does not result to the recognition of an asset at present.

Answer 18

True

Question 19

Your business has total assets of Php10M, total liabilities of Php6M and total equity of Php4M. This means that out of total Php10M resources, you have provided Php6M.

Answer 19

False

Question 20

Income decreases equity, while expenses increase equity.

Answer 20

False

Question 21

Total assets are Php10. Total liablities are Php6. Therefore, total equity is Php4.

Answer 21

True

Question 22

Total assets are Php20. Total liabilities are Php16. Therefore, total equity is Php36.

Answer 22

False

Php4.

Question 23

Total assets are Php80. Total equity is Php60. Therefore, total liabilities are Php20.

Answer 23

True

Question 24

Total liabilities are Php60. Total equity is Php30. Therefore, total assets are Php30.

Answer 24

False

Php90.

Question 25

Total income is Php100. Total expenses are Php40
Therefore, the difference of Php60 is profit.

Answer 25

True

Question 26

Total income is Php50. Total expenses are Php60. Therefore, the difference of Php10 is loss.

Answer 26

True

Question 27

Beginning equity is Php100. Profit during the period is Php20. If there are no other changes in equity, the ending balance of equity must be Php120.

Answer 27

True

Question 28

Beginning equity is Php10. Loss during the period is Php4. If there are no other changes in equity, the ending balance of equity must be Php6.

Answer 28

True

Question 29

Total assets are Php100. Total liabilities are Php40. Total equity, before income and expenses, are Php40. Therefore, profit is Php20.

Answer 29

True

Question 30

Total assets are Php100. Total liabilities are Php60. Total equity, before income and expenses, is Php30. If the total income is Php50, total expenses must be Php30.

Answer 30

False

Total expenses must be Php40.