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BUSINESS ACCOUNTING
Master of business administration

Exercises chapter 1

Dr. Ines Amara

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(1) Which of the following would not be considered
internal users of accounting data for a company?

a. The president of a company.

b. The controller of a company.
c. Creditors of a company.
d. Salesmen of the company.
(2) The ABC Company has five plants nationwide that cost a total3of
$100 million. The current fair value of the plants is $500 million. The
plants will be recorded and reported as assets at

a. $100 million.
b. $600 million.
c. $400 million.
d. $500 million.
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(3) Liabilities

a. are future economic benefits.

b. are existing debts and obligations.
c. possess service potential.
d. are things of value used by the business
in its operation.
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(4) Capital is

a. an owner's permanent investment in the

business.
b. equal to liabilities minus owner's equity.
c. equal to assets minus owner's equity.
d. equal to liabilities plus drawings.
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(5) Revenues would not result from

a. sale of merchandise.
b. initial investment of cash by owner.
c. performance of services.
d. rental of property.
(6) If total liabilities decreased by $30,000 and owner’s equity increased
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by $20,000 during a period of time, then total assets must change by
what amount and direction during that same period?

a. $50,000 decrease
b. $10,000 decrease
c. $10,000 increase
d. $50,000 increase
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(7) Which of the following is not an
asset?

a. Cash.
b. Accounts payable.
c. Accounts receivable.
d. Equipment.
(8) Performing services on account will have the following
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effects on the components of the basic accounting
equation:

a. Increase assets and decrease owner’s

equity.
b. Increase assets and increase owner’s
equity.
c. Increase assets and increase liabilities.
d. Increase liabilities and increase owner’s
equity.
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(9) Which of the following events is not
recorded in the accounting records?

a. Equipment is purchased on account.

b. An employee is terminated.
c.A cash investment is made into the
business.
d. The owner withdraws cash for personal
use.
(10) The following classifications are true EXCEPT: 11

a.Salaries and utilities are expense accounts.

b.Supplies and land are asset accounts.
c.Cash and accounts payable are asset accounts.
d.Suppliers
and accounts payable are liabilities
accounts.
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(11) What type of business organization provides the least
amount of protection for bankers and other creditors of
the company?

a. Partnership.
b. Proprietorship.
c. Corporation.
d. Both (a) and (b).
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(12) The type of account with a normal
credit balance is:

a. an asset.
b. a drawing.
c. an expense.
d. a revenue.
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(13) Which of the following statements is
FALSE?

a. The left side of a T-account is the credit side.

b.Entries that increase asset accounts, or
decrease liability accounts are posted as debits.
c. The left side of a T-account is the debit side.
d. Entries that decrease asset accounts and
increase liability accounts are posted as credits.
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(14) Which of the following transactions
would increase both assets and liabilities?

a.Purchasing a car by issuing a note

payable.
b.Purchasing office supplies for cash.
c.Performing
a service and receiving the
cash immediately.
d.Pay money to the bank.
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(15) Which of the following statements is
TRUE?

a. If a journal entry has two debits, it must have

two credits.
b.Journal entries must include both balance sheet
and income statement accounts.
c. Each journal entry must balance.
d. Each journal entry must be a compound entry.
(16) The journal entry to record the 17
payment of salaries and wages of $ 8,000
is:
a.Dr. Cash 8,000
Cr. Salaries and wages 8,000
b. Dr. Salaries and wages 8,000
Cr. cash 8,000
c. Dr. Cash 8,000
Cr. Salaries and wages payable 8,000
d. Dr. Salaries and wages payable 8,000
Cr. Cash 8,000
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(17) During June, Assets increased by $28,000, and
Liabilities increased by $9,000. Owner's Equity must have:

a. decreased by $37,000.
b. increased by $37,000.
c. decreased by $19,000.
d. increased by $19,000.