Chapter 3

The Accounting Equation

KEY ANSWERS & SOLUTIONS:

1. A
2. A
3. B
4. C
5. B
6. D
7. D
8. C
9. C
10. A
11. C
12. A
13. D
14. D
Solution:
Income less Expenses = Profit (Loss)
? – 630,000 = (270,000)
? = 360,000

15. C
Solution:
630,000 – 150,000 = 480,000 expense (checking: 630,000 income – 480,000 expenses = 150,000 profit)

16. C

17. D

18. B
Solution:
Assets = Liabilities + Equity
Beg. 130 = 80 + 50
Decrease in liabilities/ Profit (20) 25
End. ? = 60 + 75

Answer: Ending total assets = (60 liabilities, end. + 75 equity, end.) = 135

19. D
Solution:
Assets = Liabilities + Equity
Beg. Irrelevant = Irrelevant + 60
Profit Irrelevant 25
End. ? = 40 + 85
Answer: Ending total assets = (40 liabilities, end. + 85 equity, end.) = 125

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20. A
Solution:
Assets = Liabilities + Equity
Beg. 120M = 80M + 40M*
Increase in assets/Profit 30M - Irrelevant
End. 150M = 80M + ?

* squeezed amount

Answer+: Ending total equity = (150 assets, end. - 80 liabilities, end.) = 70

21. C
Solution:
Assets = Liabilities + Equity
Beg. 120 = 85 + 35*
Income less expenses (60 – 45) Irrelevant Irrelevant 15
End. Irrelevant = Irrelevant + 50

* squeezed amount

22. D
Solution:
Assets = Liabilities + Equity
Beg. 150 = 80 + 70*
Income less expenses (60 – 40) Irrelevant Irrelevant 20
End. 130 = 60 + 90

* squeezed amount

Answer: Ending total liabilities = (130 assets, end. - 90 equity, end.) = 40

23. D
Solution:

Step 1:
Assets, end. 90 – Liabilities, end. 60 = Equity, end. 30

Step 2:
Equity, beginning (given) 10
Add: Income (given) 45
Less: Expenses (squeeze) (25)
Equity, ending (see Step 1) 30

24. D
Solution:

Step 1:
Assets, end. 150 – Liabilities, end. 90 = Equity, end. 60

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Step 2:
Equity, beginning (given) 30
Add: Income (squeeze) 80
Less: Expenses (given) (50)
Equity, ending (see Step 1) 60

25. D
Solution:

Step 1:
Assets, end. 190 – Liabilities, end. 70 = Equity, end. 120

Step 2:
Equity, beginning (given) 145
Profit (Loss) squeeze (25)
Equity, ending (see Step 1) 120