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Answers on p. 45

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Multiple Choice Quizzes A and B are available at the book’s Website.

1. A building is offered for sale at $500,000 but is currently assessed at $400,000. The purchaser of the building believes the building is worth $475,000, but ultimately purchases the building for $450,000. The purchaser records the building at:

   1. $50,000
   2. $400,000
   3. $450,000
   4. $475,000
   5. $500,000

2. On December 30, 2006, KPMG signs a $150,000 contract to provide accounting services to one of its clients in 2007. KPMG has a December 31 year-end. Which accounting principle requires KPMG to record the accounting services revenue from this client in 2007 and not 2006?

   1. Business entity principle
   2. Revenue recognition principle
   3. Monetary unit principle
   4. Cost principle
   5. Going-concern principle

3. If the assets of a company increase by $100,000 during the year and its liabilities increase by $35,000 during the same year, then the change in equity of the company during the year must have been:

   1. An increase of $135,000.
   2. A decrease of $135,000.
   3. A decrease of $65,000.
   4. An increase of $65,000.
   5. An increase of $100,000.

4. Brunswick borrows $50,000 cash from Third National Bank. How does this transaction affect the accounting equation for Brunswick?

   1. Assets increase by $50,000; liabilities increase by $50,000; no effect on equity.
   2. Assets increase by $50,000; no effect on liabilities; equity increases by $50,000.
   3. Assets increase by $50,000; liabilities decrease by $50,000; no effect on equity.
   4. No effect on assets; liabilities increase by $50,000; equity increases by $50,000.
   5. No effect on assets; liabilities increase by $50,000; equity decreases by $50,000.

5. Geek Squad performs services for a customer and bills the customer for $500. How would Geek Squad record this transaction?

   1. Accounts receivable increase by $500; revenues increase by $500.
   2. Cash increases by $500; revenues increase by $500.
   3. Accounts receivable increase by $500; revenues decrease by $500.
   4. Accounts receivable increase by $500; accounts payable increase by $500.
   5. Accounts payable increase by $500; revenues increase by $500.