31. Mats owns and operates a small advertising business from an office. His home is worth $400,000, his business assets are worth $275,000, and his business obligations total $65,000. How much equity does he have in his advertising business?
A. $210,000
B. $335,000
C. $340,000
D. $610,000
Equity = $210,000 ($275,000 - $65,000)
32. Whitefish Inc. bought a building worth $750,000. They paid $150,000 in cash and borrowed the remainder from a bank. What is the effect of this transaction on the accounting equation?
A. Assets increases by $750,000 and liabilities increases by $750,000.
B. Assets increases by $750,000 and liabilities increases by $660,000.
C. Assets increases by $600,000 and liabilities increases by $750,000.
D. Assets increases by $600,000 and liabilities increases by $600,000.
Both assets and liabilities increased by $600,000 ($750,000 - $150,000)
33. Trout Co. ordered and received inventory worth $45,000 on credit. What is the effect of this transaction on the accounting equation?
A. Assets increases by $45,000 and liabilities increases by $45,000.
B. Assets increases by $45,000 and liabilities decreases by $45,000.
C. Assets decreases by $45,000 and liabilities increases by $45,000.
D. Assets decreases by $45,000 and liabilities decreases by $45,000.
34. A shareholder invested $75,000, made up of $50,000 in cash and a vehicle worth $25,000, in a new company and received shares in exchange. What is the effect of this transaction on the accounting equation?
A. Assets increases by $75,000 and owners' equity increases by $75,000.
B. Assets increases by $75,000 owners' equity increases by $50,000, and liabilities increases by $25,000.
C. Assets increases by $50,000 and owners' equity increases by $50,000.
D. Assets increases by $50,000 and liabilities increases by $50,000.
35. Sam's Snow Removal received $500 at the beginning of the winter to cover the fees for the entire winter for cleaning a customer's driveway while they went to Florida for the season. What is the effect of this transaction on the accounting equation?
A. Assets increases by $500 and owners' equity increases by $500.
B. Assets increases by $500 and liabilities increases by $500.
C. Liabilities increases by $500 and owners' equity increases by $500.
D. The increase and decrease in assets offset each other.
a liability is created since the work will be completed in the future.
36. If an entity pays off an amount owed to a supplier, what is the effect on the accounting equation?
A. Assets and liabilities both increase.
B. Assets and liabilities both decrease.
C. Assets and owners' equity both decrease
D. There is no effect on the accounting equation.
37. If an entity receives cash from a customer for payment of an amount owing to them, what is the effect on the accounting equation?
A. Assets and liabilities both increase.
B. Assets and liabilities both decrease.
C. Assets and owners' equity both decrease
D. There is no effect on the accounting equation.
38. If a company pays rent for the next period in advance, what is the effect of the transaction on the accounting equation?
A. Assets decrease, and liabilities decrease.
B. Assets decrease, and owners' equity decrease.
C. Assets increase, and liabilities increase.
D. There is no effect on the accounting equation.
39. Which of the following correctly describes an asset?
A. An obligation of the entity
B. An investment the owners have made
C. An economic resource that provides future benefits
D. An economic sacrifice made to earn revenue
40. Which of the following correctly describes a liability?
A. An obligation of the entity
B. An investment the owners have made
C. An economic resource that provides future benefits
D. An economic sacrifice made to earn revenue