Practice Exam Tracking Expenses, Liabilities, and Equity

A company withdraws $15,000 of cash from the business for personal use. How does this transaction affect the accounting equation?

Assets decrease by $15,000, and equity decrease by $15,000.

The owner of a small nail salon invests $10,000 of their own cash in the business. How does this transaction affect the accounting equation?

Assets increase by $10,000, and equity increases by $10,000.

A fitness company issues 500 shares of common stock for $10 each. How does this transaction affect the accounting equation?

Assets increase by $5,000, and equity increases by $5,000.

Which of the following is an example of a non-current liability?

Mortgage Payable

On June 30, a servIce company that provides consulting and training to clients, had the following balances in its liability accounts: • Accounts payable $30,000 • Loans payable $48,000 • Taxes pavable $10,000 • Deferred revenue. $12,000 What is the total amount of liabilities that the company should report on its balance sheet as of July 17?

$93,000

Which of the following statements best describes the difference between assets and liabilities?

Assets are what a company owns and liabilities are what a company owes.

A manufacturing companv needs to purchase a piece of new equipment for $30,000 in June. The company obtains a 3-vear loan from the local credit union with an interest rate of 6% per annum, compounded monthly. The loan requires equal monthly payments ot $966.64, starting from the end ot the first month. The company records the loan using the amortization method. What is the journal entry that the company should make at the end of the first month to record the loan payment?

Debit Interest Expense $246.58, Debit Notes Pavable $720.06, Credit Cash $966.64

Paying interest on a loan

Decreases both cash (an asset) and interest expense (an equity account).

The total amount an employee earns before payroll deductions

Gross Pay

What is the term for the money or assets given to the business by the owner or partners?

Capital Contributions

Johan runs a small woodworking business and sells his products to customers on credit. He also buys wood paint, varnish, and other supplies from various suppliers on credit. At the end of the month, he records his transactions in his accounting system. Which ot the following transactions will increase his liabilities?

He buys $800 worth of wood from a new supplier on credit.

Borrowing money from a bank.

Increases both cash (an asset) and loan payable (a liability).

Issuing shares of common stock

Increases cash (an asset) and common stock (an equity account).

Which ot the following are considered non-current liabilities?

Monthly lease payment on a 10-year lease, employee pension, and bonds with a maturity date of 5 vears are all non current liabilities because they are all due after one year

The amount an emplovee takes home after taxes and other pavroll deductions.

Net Pay

Which of the following statements is true about exempt and non-exempt employees under the Fair Labor Standards Act (FLSA)?

Non-exempt emplovees are subject to overtime pay benetits, while exempt emplovees are not.

Which type of business has no owners, only founders or board members, and has net assets instead of equity?

Nonprofit Corporation

The length of time for which an employee is paid, such as weekly, biweekly, or monthly

Pay period.

A document that outlines the details of an employee's pay, such as gross pay, net pay, withholding and Pay stub deductions, and pay rate

Pay stub.

The process of paying employees, keeping track of employee compensation and related payroll costs, and recording these transactions in tinancial journal entries.

Payroll

Which of the following forms Is used by independent contractors to provide their tax identification number (TIN) to the businesses that hire them.

W-9

A leaal process that allows a creditor to take money from an emplovee's paycheck to pay off a debt.

Wage garnishment.

The amount of money withheld from an employee's paycheck for taxes and other purposes.

Withholding and Deductions.

What is the term for the owner's rights to the assets of the business after subtracting all of the liabilities?

Equity