Chapter 3

The Accounting Equation

PROBLEM 1: TRUE OR FALSE
1. TRUE
2. FALSE
3. FALSE
4. FALSE – assets and liabilities, respectively
5. FALSE
6. TRUE
7. TRUE
8. FALSE – also contracts and other operation of law
9. FALSE – only past events
10. TRUE

PROBLEM 2: TRUE OR FALSE

1. TRUE
2. TRUE
3. FALSE – investments by, and distributions to, owner are direct capital adjustments rather
than income and expenses
4. TRUE
5. FALSE
6. TRUE
7. TRUE
8. TRUE
9. FALSE - ₱6M provided by creditors; ₱4M equity represents amounts provided by the owner,
retained profits and other capital adjustments.
10. FALSE

PROBLEM 3: TRUE OR FALSE

1. TRUE
2. FALSE - ₱4
3. TRUE
4. FALSE - ₱90
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. FALSE - ₱40

PROBLEM 4: FOR CLASSROOM DISCUSSION

1. D
2. D
3. A
4. D
5. D
6. D
7. B
8. A
9. C
10. B
Solution:
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
? 340,000 280,000 420,000 390,000

? = 340,000 + 280,000 + 420,000 – 390,000

? = 650,000

PROBLEM 5: COMPUTATIONS – BASIC EQUATION

Solution:
ASSETS = LIABILITIES + EQUITY
1. ₱460,000 ₱190,000 ₱270,000
2. ₱230,000 ₱160,000 ₱70,000
3. ₱1,120,000 ₱990,000 ₱130,000
4. ₱1,020,000 ₱610,000 ₱410,000
5. ₱820,000 ₱580,000 ₱240,000

PROBLEM 6: COMPUTATIONS – BASIC EQUATION

Solution:
ASSETS = LIABILITIES + EQUITY
1. ₱780,000 ₱290,000 ₱490,000
2. ₱990,000 ₱720,000 ₱270,000
3. ₱1,060,000 ₱890,000 ₱170,000
4. ₱1,420,000 ₱1,060,000 ₱360,000
5. ₱1,920,000 ₱890,000 ₱1,030,000

PROBLEM 7: COMPUTATIONS – EXPANDED EQUATION

Solution:
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
1. ₱590,00 ₱380,000 ₱130,000 ₱210,000 ₱130,000
0
2. ₱490,00 ₱280,000 ₱40,000 ₱350,000 ₱180,000
0
3. ₱860,00 ₱220,000 ₱360,000 ₱360,000 ₱80,000
0
4. ₱360,00 ₱160,000 ₱90,000 ₱180,000 ₱70,000
0
5. ₱870,00 ₱410,000 ₱170,000 ₱480,000 ₱190,000
0
PROBLEM 8: COMPUTATIONS – EXPANDED EQUATION
Solution:
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
a. ₱920,000 ₱710,000 ₱290,000 ₱440,000 ₱520,000
b. ₱870,000 ₱310,000 ₱240,000 ₱470,000 ₱150,000
c. ₱890,000 ₱240,000 ₱240,000 ₱600,000 ₱190,000
d. ₱740,000 ₱530,000 ₱170,000 ₱1,900,00 ₱1,860,00
0 0
e. ₱1,440,00 ₱780,000 ₱470,000 ₱680,000 ₱490,000
0
PROBLEM 9: COMPUTATIONS - ACCOUNTING EQUATION
Solution:
ASSETS = LIABILITIES + EQUITY
Ex. ₱100 0 ₱100
1. ₱20 0 ₱20
2. ₱500 ₱500 0
3. ₱2,000 0 ₱2,000
4. (₱800) 0 (₱800)
5. ₱1,820 ₱500 ₱1,320

PROBLEM 10: MULTIPLE CHOICE

1. A
2. C
3. D
4. B
5. D
6. C
7. B
8. C
9. D
10. B

PROBLEM 11: MULTIPLE CHOICE

1. D
2. D
3. B
4. A
5. B
6. B
7. C
8. C
9. D
10. A
PROBLEM 12: MULTIPLE CHOICE
1. A
2. B
3. A
4. A
5. C
6. A
7. B
8. C
9. B
10. A

PROBLEM 13: MULTIPLE CHOICE

1. B
2. A
3. D
Solution:
Asset Liabilitie Equit
= +
s s y
Beg. 120 = 75 + 45
Decrease in liabilities/
Profit (20) 25
End. ? = 55 + 70

Answer: Ending total assets = (55 liabilities, end. + 70 equity, end.) = 125

4. C
Solution:
Liabilitie Equit
Assets = +
s y
Irrelevan
Beg. t = Irrelevant + 50
Profit Irrelevant 25
End. ? = 40 + 75

Answer: Ending total assets = (40 liabilities, end. + 75 equity, end.) = 115

5. A
Solution:
Asset Liabilitie
= + Equity
s s
Beg. 100M = 60M + 40M*
Increase in Irrelevan
assets/Profit 30M - t
End. 130M = 60M + ?
* squeezed amount
Answer+: Ending total equity = (130 assets, end. - 60 liabilities, end.) = 70

6. A
Solution:
Liabilitie Equit
Assets = +
s y
Beg. 120 = 75 + 45*
Irrelevan
Income less expenses (60 – 45) t Irrelevant 15
Irrelevan
End. t = Irrelevant + ?
* squeezed amount

Answer: Ending total equity = (45 equity, beg. + 15 profit) = 60

7. A
Solution:
Liabilitie Equit
Assets = +
s y
Beg. 120 = 70 + 50*
Irrelevan
Income less expenses (60 – 40) t Irrelevant 20
End. 130 = ? + 70
* squeezed amount

Answer: Ending total liabilities = (130 assets, end. - 70 equity, end.) = 60

8. C
Solution:

Step 1:
Assets, end. 60 – Liabilities, end. 45 = Equity, end. 15

Step 2:
Equity, beginning (given) 10
Add: Income (given) 25
Less: Expenses (squeeze) (20)
Equity, ending (see Step 1) 15

9. C
Solution:

Step 1:
Assets, end. 160 – Liabilities, end. 90 = Equity, end. 70

Step 2:
Equity, beginning (given) 30
Add: Income (squeeze) 90
Less: Expenses (given) (50)
Equity, ending (see Step 1) 70

10. A
Solution:

Step 1:
Assets, end. 180 – Liabilities, end. 70 = Equity, end. 110

Step 2:
Equity, beginning (given) 75
Profit (Loss) squeeze 35
Equity, ending (see Step 1) 110
PROBLEM 14: MULTIPLE CHOICE
1. A
Solution: 15,000 – (4,000 + 100) = 10,900 profit

2. A

3. C

4. A
Solution:
(20 x 4 weeks in a month) - ? = 10 profit
? = 70 total expenses in a month ÷ 4 weeks = 17.5 weekly spending

5. C (20 allowance – 20 spending – 16 cost of balut) = (16) loss

6. B (20 x 52) – 936 = 104

7. A

8. D

9. C

10. C