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Financial Accounting and Reporting Theories > Chapter 3: The Accounting Equation > Flashcards

Chapter 3: The Accounting Equation Flashcards

1
Q

True or False

Legal ownership is a necessary criterion when determining the existence of an asset

A

False

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2
Q

True or False
You acquired a car through an auto loan. The bank holds the registration papers of the car until you have fully paid the loan. Right now, the car is not yet your asset even though you are already using it because you don’t legally own yet the car.

A

False

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3
Q

True or false

An essential element of an asset is “control”. Control means ownership

A

False

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4
Q

True or False
Control of an asset refers to an entity’s exclusive right to enjoy the benefits from the resource or the entity’s ability to prevent others from enjoying those benefits

A

True

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5
Q

True or False

Legal obligations arise only from law

A

False

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6
Q

True or False

Obtaining loan increases both your assets and liabilities, but not your equity

A

True

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7
Q

True or False

Equity is assets plus liabilities

A

False

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8
Q

True or False

Assets can arise from future events

A

False

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9
Q

True or False

Capital, net assets, and net worth are other terms used to describe equity

A

True

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10
Q

True or False

Assets plus equity equals liabilities

A

False

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11
Q

True or False
You had a house constructed through a housing loan. You moved into your new home. However, the bank holds title over your property until you have fully paid the loan. The house is already your asset even if you have not yet fully paid the loan because you control the economic benefits from the property.

A

True

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12
Q

True or False
Control over a resource must have been obtained first before an asset is recorded. A mere intention to obtain control over a resource at a future time does not warrant the recognition of an asset.

A

True

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13
Q

True or False
You bought a pair of shoes. You realized that the shoes don’t look good on you so you decided not to use them anymore. However, you don’t want to give the shoes away or let others use them. The shoes are not your assets.

A

False

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14
Q

True or False
You bought a pair of shoes. You realized that the shoes don’t look good on you so you decided not to use them anymore. However, you don’t want to give the shoes away or let others use them. The shoes are not your assets.

The shoes still have future economic benefits even if you don’t want them anymore because you can still sell them or exchange them for other resources

A

True

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15
Q

True or False

“Economic benefits” means the potential of resources to provide an entity, directly or indirectly, with cash

A

True

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16
Q

True or False

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

A

False

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17
Q

True or False
Your business has total assets of 10M, total liabilities of 6M, and total equity of 4M, This means that out of the total 10M resources, 6M were provided by your creditors and not you.

A

True

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18
Q

True or False

Income increase equity

A

True

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19
Q

True or False

Profit decreases equity

A

False

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20
Q

True or False

Total assets is 10. Total liabilities is 6. Therefore, total equity is 16

A

False

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21
Q

True or False

Totals assets is 16. Total liabilities is 6. Therefore, total equity is is 10

A

True

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22
Q

True or False

Total assets is 8. Total equity is 6. Therefore, total liabilities is 2

A

True

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23
Q

True or False

Total liabilities is 6. Total equity is 3. Therefore, the total assets is 10.

A

False

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24
Q

True or False

Total income is 10. Total expense is 4. Therefore, the total difference if 6 is loss

A

False

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25
Q

True or False

Total income is 10. Total expenses is 14. Therefore, the difference of 4 is loss

A

True

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26
Q

True or False

Beginning equity is 14. Profit during the period is 6. Therefore, ending equity is 20

A

True

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27
Q

True or False

Beginning equity is 14. Loss during the period is 4. Therefore, ending equity is 18

A

False

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28
Q

True or False

Total assets is 20. Total liabilities is 10. Total equity, before income and expense, is 3. Therefore, the profit is 7.

A

True

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29
Q

True or False
Total asset is 20. Total liabilities is 10. Total equity, before income and expenses, is 3. Total income is 6. Therefore, total expense is 2.

A

False

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30
Q

Liability cannot arise from

a. a legal obligation resulting from a requirement of the law
b. a contract that an entity has entered to
c. a legal obligation resulting from an operation of the law
d. an intention to acquire assets in the future

A

d. an intention to acquire assets in the future

31
Q

which of the following is not an essential element of an asset?

a. control over the resource
b. a past event resulting to control over the resource
c. inflows of future economic benefit
d. ownership over the resource.

A

d. ownership over the resource.

32
Q

Which of the following is not an essential element of a liability?

a. present obligation
b. a past event resulting to a present obligation
c. outflows of future economic benefits
d. intention to obligate oneself in the future

A

d. intention to obligate oneself in the future

33
Q

You acquired a cellphone through an installment plan. According to your contract, you are required to return the cellphone to the supplier if you miss out on two installment payments. Upon signing the contract, the supplier gave you the cellphone. You immediately took photographs of your face and upload them to the internet. Which of the following statements is true?

a. the cellphone becomes your asset only after you have fully paid the installment price
b. the cellphone is already your asset because you control the economic benefits from it. Legal ownership is not a necessary criterion when determining the existence of an asset - control is!
c. the cellphone is the supplier’s asset until you have fully paid the installment price
d. the cellphone looks nice but the selfie is not.

A

b. the cellphone is already your asset because you control the economic benefits from it. Legal ownership is not a necessary criterion when determining the existence of an asset - control is!

34
Q

You acquired a cellphone through an installment plan. According to your contract, you are required to return the cellphone to the supplier if you miss out on two installment payments. Upon signing the contract, the supplier gave you the cellphone. You immediately took photographs of your face and upload them to the internet
Upon taking possession of the cellphone, you will record it as
a. an asset and a liability
b. an asset and an equity
c. an asset only
d. to be recorded only upon full payment of the purchase price.

A

a. an asset and a liability

35
Q

Several months before your birthday, you repeatedly posted on Facebook that you will be throwing a party. You invited all your classmates, neighbors, strangers, friends, and “netizens” from all over the world to come. On your birthday, you will be obligated to throw a party because of a

a. legal obligation
b. constructive obligation
c. Facebook post
d. life event

A

b. constructive obligation

36
Q

Income could not possibly result from/to

a. an increase in assets
b. a decrease in liabilities
c. an increase in liabilities
d. an increase in equity

A

c. an increase in liabilities

37
Q

Which of the following statements is correct regarding income and expense

a. if income exceeds expenses, the excess represents loss
b. if expenses exceed income, the excess represents profits
c. income less expense equals equity
d. income and expenses cannot rise from transactions between a business and its owners.

A

d. income and expenses cannot rise from transactions between a business and its owners.

38
Q

In the expanded accounting equation, why are expenses deducted from equity?

a. because expenses increase equity
b. because expenses decrease equity
c. because expenses do not affect equity
d. because Fra Luca Pacioli says so

A

b. because expenses decrease equity

39
Q

A business owner’s contribution to the business results in

a. an increase in assets and an increase in income
b. a decrease in assets and an increase in owner;s equity
c. an increase in assets and an increase in liability
d. an increase in assets and an increase in owner’s equity

A

d. an increase in assets and an increase in owner’s equity

40
Q

ABC Co. has a total liabilities of 20M and total equity of 30M. ABC Co. has total assets of

a. 10M
b. 40M
c. 50M
d. None of these

A

c. 50M

41
Q

It is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity

a. asset
b. liability
c. equity
d. incomr

A

a. asset

42
Q

A resource that provides economic benefits only in the current period but not in the future period is a(an)

a. asset
b. liability
d. expense
d. income

A

d. expense

43
Q

An event that resulted to the obtaining of control over a resource or the incurrence of a present obligation is called a

a. past event
b. current event
c. future event
d. special event

A

a. past event

44
Q

It is a present obligation that have resulted from a past event and is expected the giving of resources on its settlement at some future date.

a. asset
b. liability
c. expense
d. income

A

b.liability

45
Q

Imagine you are an entrepreneur. Which of the following would you consider to be good news?

a. your business earned zero income and incurred expenses of 40M
b. your business earned income of 30M and incurred expenses of 40M
c. the liabilities of your business increased by 10M
d. your business earned income of 30M and incurred expenses of 10M

A

d. your business earned income of 30M and incurred expenses of 10M

46
Q

Control over an asset may arise from

a. the exclusive right to enjoy the economic benefits from the asset
b. the ability to prevent others from enjoying the economic benefits from the asset
c. the possession of the asset but not the right to direct how, when and for what purpose the asset should be used
d. a or b

A

d. a or b

47
Q

Expenses could not possibly result from/to

a. a decrease in assets
b. a decrease in liabilities
c. an increase in liabilities
d. a decrease in equity

A

b. a decrease in liabilities

48
Q

An entity’s equity increased but there were no transactions involving the entity and its owner during the period. Which of the following could be a valid reason for this?

a. the entity obtain a loan
b. the entity earned profit
c. the entity incurred loss
d. magic

A

b. the entity earned profit

49
Q

An entity’s total assets and total equity decreased but total liabilities remained the same. Also, there were no transactions involving the entity and its owner during the period. Which of the following could be a valid reason for this?

a. the entity obtained a loan
b. the entity earned a profit
c. the entity incurred a loss
d. aliens

A

c. the entity incurred a loss

50
Q

A business has a total liabilities of 220,000 and equity of 90,000. How much is the total assets?

a. 300,000
b. 310,000
c. 130,000
d. none of these

A

b. 310,000

51
Q

A business has total assets of 380,000 and a total equity of 129,000. How much is the total liabilities?

a. 215,000
b. 509,000
c. 251,000
d. none of these

A

c. 251,000

52
Q

A business has a total assets of 780,000, and a total liabilities of 220,000. How much is the total equity?

a. 650,000
b. 561,000
c. 530,000
d. none of these

A

d. none of these - 560,000

53
Q

A business had a total income of 570,000 and total expenses of 320,000. How much is the profit (or loss)?

a. 250,000
b. (250,000)
c. 890,000
d. none of these

A

a. 250,000

54
Q

A business had a total income of 62,000 and total expenses of 91,000. How much is the profit (or loss)?

a. (29,000)
b. 29,000
c. 153.000
d. none of these

A

a. (29,000)

55
Q

A business had total expenses of 29,000 and reported a profit of 30,000. How much is the total income?

a. 1,000
b. 59,000
c. 130,000
d. none of these

A

b. 59,000

56
Q

A business had a total income of 53,000 and reported a profit of 38,000. How much is the total expense?

a. 91,000
b. 15,000
c. 130,000
d. none of these

A

b. 15,000

57
Q

A business had ending total assets of 67,000, ending total liabilities of 15,000 and beginning equity is 8,000. If the total expenses for the period amount to 29,000, how much s the total income?

a. 37,000
b. 73,000
c. 103,000
d. none of these

A

b. 73,000

58
Q

A business had ending total assets of 89,000, ending total liabilities of 36,000 and beginning equity of 18,000. If total income for the period amounts to 57,000, how much is the total expenses?

a. 30,000
b. 31,000
c. 22,000
d. none of these

A

c. 22,000

59
Q

A business has beginning equity of 52,000. If the income for the period is 87,000 while the total expenses are 63,000, how much is the ending balance of equity

a. 67,000
b. 71,000
c. 76,000
d. none of these

A

c. 76,000

60
Q

A business had beginning equity of 123,000. If the total income for the period is 59,000 while the total expenses are 81,000, how much is the balance of the equity?

a. 130,000
b. 110,000
c. 101,000
d. none of these

A

c. 101,000

61
Q

A business had a beginning equity of 62,000 and ending equity of 87,000. If the total income for the period is 98,000, how much is the total expenses?

a. 67,000
b. 73,000
c. 76,000
d. none of these

A

b. 73,000

62
Q

A business had a beginning equity of 62,000 and ending equity of 87,000. If the total expenses for the period is 73,000, how much is the total income?

a. 67,000
b. 73,000
c. 76,000
d. none of these

A

d. none of these - 48,000

63
Q

In accounting, a negative amount is normally presented

a. beginning with a minus sign
b. in parenthesis
c. as a squeezed amount
d. negatively

A

b. in parenthesis

64
Q

Manong Magba Balut sells balut. At the beginning of the day, Manong Balut had 1,000 cash. Manong used that amount to buy “balut” (uncooked), cook the “balut” and sell the “balut” online. At the end of the day, Manong Balut had 1,700 cash. Assuming all other expenses were accounted for and Manong Balut did not incur any liabilities during the day, which of the following is most likely to be a valid statement?

a. Manong Balut earned profit of 1,700 representing the increase in Manong’s assets (i.e., cash) resulting to an increase in his equity
b. Manong Balut earned profit of 700, representing the increase in Manong’s assets (i.e., cash) resulting to an increase in his equity
c. Sorry I can’t solve this because I don’t know what a balut is
d. I don’t know. I think I’d rather ask Manong Balut to teach me accounting

A

b. Manong Balut earned profit of 700, representing the increase in Manong’s assets (i.e., cash) resulting to an increase in his equity

65
Q

Papa gives you a weekly allowance of 20. In the next questions, we will treat your weekly allowance as your weekly income. The amount you spend out of the allowance represents your expenses. Any unspent amount (i.e., savings) represents your profits

You spent 18. Which of the following statements is correct?

a. your profit for the week is 20
b. your profit for the week is 2
c. you incurred a loss of 18
d. papa is kuripot

A

b. your profit for the week is 2

66
Q

To earn a profit of 10 in a month, your weekly spending should be ( use 4 weeks per month)

a. 71.5
b. 70.
c. 17.5
d. that is impossible. I would starve myself first before I can earn that profit

A

c. 17.5

67
Q

You spent all your allowance for the week. In addition, you purchased 1 “balut” worth 16 from Manong Balut, on credit. You told Manong you will pay him next week. Under the accrual basis of accounting, your profit(loss) for the week is

a. 16
b. 0
c. (16)
d. 1 balut

A

c. (16)

68
Q

If your total spending for the year was 936, your profit (loss) would be (use 52 weeks per year)

a. 104
b. 0
c. 1,040
d. I don’t know. accounting is so complicated

A

a. 104

69
Q 
On Day 1 of the first week of the year, your accounting equation will show which of the following? (Note: The allowance is not refundable to Papa)
ASSETS  =  LIABILITIES +   EQUITY 					
a. 20		0		      20	
b. 20		20		       0	
c. 20		20		     20	
d. 0		         0		      0
A

ASSETS = LIABILITIES + EQUITY

a. 20 0 20

70
Q 
You spent all your allowance for the first week. Your accounting equation at the end of Week 1 will show which of the following?
ASSETS  =  LIABILITIES +   EQUITY 					
a. 20		0		     20	
b. 20		20		     0	
c. 20		20		    20	
d. 0		         0		      0
A

ASSETS = LIABILITIES + EQUITY

d. 0 0 0

71
Q 
You spent only 18 of your allowance for the first week. Your accounting equation at the end of Week 1 will show which of the following? 
ASSETS  =  LIABILITIES +   EQUITY 					
a. 20		0		     20	
b. 18 		0		     18	
c. 2   		0		      2	
d. 0		         0		      0
A

ASSETS = LIABILITIES + EQUITY

c. 2 0 2

72
Q

You spent all your allowance for the week. In addition, you purchased 1 “balut” worth 16 from Manong Balut, on credit. You told Manong you will pay him next week. Under the accrual basis of accounting, your profit(loss) for the week is…
Your accounting equation at the end of the week will show which of the following? (Note: You already ate the balut and now its gone)
ASSETS = LIABILITIES + EQUITY
a. 16 16 0
b. 16 0 16
c. 0 16 (16)
d. 0 0 0

A

ASSETS = LIABILITIES + EQUITY

c. 0 16 (16)

73
Q

Entity A had total assets, liabilities, and equity of 160,000, 73,000, and 87,000, respectively, at the beginning of the period. During the period, Entity A’s total liabilities increased to 84,000. Entity A reported a profit of 52,000. How much is Entity A’s ending total assets?

a. 227,000
b. 220,000
c. 223,000
d. none of these

A

c. 223,000

74
Q

Entity A had total assets, liabilities, and equity of 140, 000, 49,000 and 91,000, respectively, at the beginning of the period. During the period, Entity A’s total liabilities increased by 15,000. Entity A reported a profit of 52,000. How much is Entity A’s ending total assets?

a. 207,000
b. 270,000
c. 276,000
d. none of these

A

a. 207,000

Financial Accounting and Reporting Theories (8 decks)

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