INTRODUCTION TO ACCOUNTING (QUESTIONS & EXERCISES)

CHAPTER 2

MULTIPLE CHOICE QUESTIONS

1. If total assets increase by 20,000 million VND during the period and total liabilities
increase by 12,000 million VND in the same period, the change in the value of equity is:

a. Increase by 32,000 million VND

b. Decrease by 32,000 million VND
c. Increase by 8,000 million VND
d. Decrease by 8,000 million VND

2. At the beginning of the period, a company's total assets are 800 million VND, and total
liabilities are 300 million VND. During the period, the business generates a profit of 100
million VND, without any withdrawals or additional contributions of capital by the owner.
The company’s equity at the end of the period is:

a. 500 million VND

total assets= total liabilities+ OE
b. 1,200 million VND OE= 500+100=600
c. 600 million VND => owner's equity= TA-TL = 800-300=500
d. None of the above

3. On January 1, 20X1, ABC Company has total assets of 800,000 million VND and total
liabilities of 300,000 million VND. If total assets decrease by 80,000 million VND and equity
increases by 120,000 million VND during the year, the total liabilities on December 31, 20X1
will be:

a. 620 million VND

b. 720 million VND
c. 100 million VND
d. 200 million VND

4. At the beginning of 20X1, ABC Company’s liabilities and equity were 90,000 million
VND and 150,000 million VND, respectively. During 20X1, the company distributed
dividends of 40,000 million VND, incurred expenses of 340,000 million VND, and earned
revenue of 450,000 million VND. What is ABC’s total assets at the end of 20X1?

a. 350,000 million VND

b. 240,000 million VND
c. 260,000 million VND
d. 310,000 million VND

5. Which of the following is not a primary characteristic in the accounting definition of an

asset?

a. The ability to provide economic benefits to the entity

b. Control over the asset by the entity
c. Current resources owned by the entity
d. Ownership rights of the entity over the asset
6. Liabilities are defined as:

a. Present obligations of the entity, arising from past transactions and events, to be settled
through the outflow of resources from the entity.
b. Present obligations of the entity, arising from future transactions and events, to be settled
through the outflow of resources from the entity.
c. Future obligations of the entity, arising from past transactions and events, to be settled
through the outflow of resources from the entity.
d. Present obligations of the entity, arising from future transactions and events, to be settled
through the outflow of resources from the entity.

7. Revenue is recognized when a business:

a. Receives payment for the sale of products, goods, or services

b. Receives funds from financial institutions
c. Receives funds from issuing shares
d. Receives advance payments from customers

8. Which of the following best describes the term "expense"?

a. The value of assets used in the company’s investment activities

b. Economic resources that will be used for future activities of the company
c. Amounts distributed to the company’s shareholders
d. The value of resources used to generate revenue for the company

9. Equity is defined as:

a. Assets - Liabilities
b. Total Assets - Total Liabilities
c. Revenue - Expenses
d. Contributions by the owner

10. Mr. An, an owner, invests 2 billion VND (in the form of a bank deposit) to establish
ANMI Company. The effect of this transaction on the balance sheet is:

a. Increase in one asset, decrease in another asset

b. Decrease in assets, decrease in liabilities
c. Increase in assets, increase in liabilities
d. Increase in assets, increase in owner’s equity

11. ABC Company used bank funds to purchase a transportation vehicle for 500 million
VND. The effect of this transaction on the balance sheet is:

a. Increase in one asset, decrease in another asset

b. Decrease in assets, decrease in liabilities purchase +500 vehicle in assets; cty sử dụng used
c. Increase in assets, increase in liabilities funds-> vay ngân hàng/ nợ phải trả => TL +500
d. Increase in assets, increase in owner’s equity
12. ABC Company purchased a transportation vehicle for 450,000,000 VND without full
payment to the seller. The effect of this transaction on the balance sheet is:

a. Increase in one asset, decrease in another asset

b. Decrease in assets, decrease in liabilities
c. Increase in assets, increase in liabilities
d. Increase in assets, increase in owner’s equity

13. Mr. An withdrew 100 million VND of capital from ANMI Company. The effect of this
transaction on the balance sheet is:

a. Increase in one asset, decrease in another asset

b. Decrease in assets, decrease in liabilities
c. Decrease in assets, decrease in equity
d. Decrease in assets, decrease in owner’s equity

14. ABC Company paid a seller by taking a bank loan of 120 million VND. The effect of this
transaction on the balance sheet is:

a. Increase in one asset, decrease in another asset

b. Increase in assets, increase in liabilities
c. Increase in liabilities, decrease in other liabilities
d. Increase in assets, increase in owner’s equity

15. ABC Company used bank funds to pay 15 million VND for shipping costs. The effect of
this transaction on the balance sheet is:

a. Increase in one asset, decrease in another asset

b. Decrease in assets, decrease in liabilities
c. Increase in assets, increase in liabilities
d. Decrease in assets, decrease in owner’s equity

16. ABC Transport Company collected 350 million VND in shipping fees via bank transfer.
The effect of this transaction on the balance sheet is:

a. Increase this asset, decrease another asset

b. Decrease assets, decrease liabilities
c. Increase assets, increase liabilities
d. Increase assets, increase owner’s equity
DISCUSSION QUESTIONS

Question 1: Analyze the elements of the basic accounting equation.

Question 2: Analyze the key differences between the basic accounting equation and the
expanded accounting equation.

Question 3: Present the definition and recognition criteria for assets. Give an example of a
situation where a resource meets the asset definition but is not recognized as an asset of the
entity.

Question 4: Human resources and intellectual property are critical factors for many entities.
Can these factors be recognized as assets of the entity? Why or why not?

Question 5: Explain the statement, "Revenue recognition criteria are closely related to asset
or liability recognition criteria."

Question 6: Define liabilities and discuss the recognition criteria. Provide an example of a
liability and explain why it qualifies as a liability.

Question 7: Present the definition of equity. Explain why accounting standards do not
specify criteria for recognizing equity.

Question 8: Differentiate between period costs and capitalized costs.

Question 9: Explain the statement, "Each economic transaction impacts at least two elements
of the accounting equation."

Question 10: Explain the statement, "Each economic transaction affects various elements in
the accounting equation in a way that always maintains the balance of the established
equation."

EXERCISES

Exercise 2.1 Calculate the missing amounts (x, y, and z) in the following table (Unit: million
VND):

Assets Liabilities Equity

a. 30,000 20,000 (z)
b. 15,000 (y) 1,000
c. (x) 25,000 80,000

Exercise 2.2 Calculate the missing amounts (from a to e) in the following table (Unit: million
VND):
 Item A B C D E
assets Bank deposits 1,000 200 (c) 2,000 2,500
assets Inventory 2,000 800 600 4,000 800
assets Equipment 8,000 6,000 4,000 7,000 (e)
liabilities Payable to supplier 4,000 (b) 3,000 3,000 4,500
owner's equity Equity capital 2,000 3,000 3,000 (d) 1,000
owner's equity Retained earnings (a) 1,000 500 (d) 1,000

Exercise 2.3 Hoa Binh Company has liabilities of 125 billion VND as of December 31, 20X1,
with total assets of 450 billion VND. During 20X2, the company obtained a bank loan of 5
billion VND. Its revenue for the year was 89 billion VND, and its operating expenses were 82
billion VND. The company distributed dividends to shareholders amounting to 2.4 billion
VND.

Requirements:

• (a) Determine the company’s equity as of December 31, 20X1.

• (b) Determine the company’s equity as of December 31, 20X2.

Exercise 2.4 (Unit: million VND) Total assets and liabilities of Paul’s Pools and Palaces at
the beginning and end of 20X1 are as follows:

Item 1/1/20X1 31/12/20X1

Total assets 280,000 475,000
Total liabilities 205,000 330,000

Requirements:

• (a) Determine the net profit for 20X1. Assume the company did not issue any new
shares and did not distribute dividends.
• (b) Determine the net profit for 20X1, assuming the company distributed dividends
worth 53,000 during the year.
• (c) Calculate the revenue for 20X1, given that the owner contributed an additional
20,000 and the company distributed dividends of 20,000. Operating expenses for 20X1
amounted to 50,000.
• (d) Calculate the operating expenses for 20X1, given that the company issued shares
worth 15,000 and total revenue for 20X1 was 130,000.

Exercise 2.5 ABC Company's balance sheet items as of December 31, 20X1 are as follows
(Unit: million VND):

• Owner's equity investment: 4,270

o Cash: 500
o Accounts receivable: 1,500
 o Bank loans: 3,000
o Investment in subsidiary: 3,000
o Short-term securities: 1,200
o Accounts payable: 1,800
o Inventory: 1,000
o Wages payable: 50
o Tools and supplies: 200
o Fixed assets: 3,500
o Taxes and government payables: 30
o Prepaid expenses: 250
o Development fund: 1,500
o Retained earnings: 500

Requirements: a. Classify each item by category: assets, liabilities, or equity.

b. Prepare the balance sheet for the company as of December 31, 20X1.

Exercise 2.6 Identify whether the following items are assets, liabilities, equity, revenue, or
expenses:

1. Cash
2. Accounts receivable
3. Loans and lease financing
4. Administrative expenses
5. Accounts payable liabilities
6. Owner’s capital
7. Inventory assets
8. Cost of goods sold expense
9. Retained earnings owner's equity
10. Tools and supplies assets
11. Prepaid insurance expenses assets
12. Goods in transit
13. Machinery and equipment A
14. Raw materials A
15. Revenue from sales and service provision R
16. Financial expenses E

Exercise 2.7 For each of the following transactions, complete the table to indicate whether it
should be recognized as an asset of the entity. If yes, specify the asset; if no, explain why it
cannot be recognized as an asset.

Yes (specify No
Transaction
asset) (reason)
a. Signed a contract to purchase goods worth 300 million VND
b. Conducted basic research worth 4,000 million VND for a new
product, which was successful
 Yes (specify No
Transaction
asset) (reason)
c. Completed delivery of goods to a customer worth 150 million
VND, but the customer has not paid yet
d. Purchased manufacturing equipment worth 200 million VND
but has not paid the supplier

Exercise 2.8 Indicate how the following economic transactions affect the accounting equation.
Use the symbol (+) if the transaction increases the element, (-) if it decreases the element, and
(0) if it does not affect the element.

Assets = Liabilities + Equity

(+/-) (+/-) +0

Transactions:

• a. Purchased a car for the director with deferred payment

• b. Owner invested additional capital in the form of bank deposits cash in bank
• c. Took a bank loan to pay off a previous car purchase debt
E decrease • d. Paid monthly utility expenses for the office A decreases (cash)
• e. Issued an invoice to a customer for services rendered
• f. Withdraw cash from the bank to replenish the petty cash fund
• g. Customer paid outstanding invoice in cash Cash on hand ; cash in bank
• h. Owner withdrew capital in the form of cash cash decrease
OE decrease( owner's capital)
Exercise 2.9 (Unit: million VND) Complete the following table and calculate the value of
each item as of December 31, 20X1.

Item 1/1/20X1 Transactions (a to e) 31/12/20X1

Bank deposits 3,000
Accounts receivable 5,000
Inventory 7,000
Machinery 60,000
Office equipment 18,000
Accounts payable 30,000
Bank loans 30,000
Owner's equity 55,000
Retained earnings 5,000

Transactions:

• a. Purchased goods on credit valued at 5,000

• b. Customer payment received by bank transfer of 4,000
• c. Paid supplier by bank transfer for debt using bank loan of 3,000
 • d. Owner withdrew capital in cash and bank transfer of 10,000
• e. Bank transfer payment of bank loan of 2,000

Exercise 2.10 (Unit: million VND) On January 1, 20X1, Chris established a company by
renting a property, with registered initial capital (bank deposits) of 40,000. During 20X1, the
company had the following transactions:

1. Chris contributed additional capital by bank deposit of 5,000.

2. Purchased office equipment with a debt of 950.
3. Collected rent payment in cash of 800.
4. Operating expenses incurred totaling 700, unpaid.
5. Paid suppliers by bank transfer of 320.
6. The company issued an invoice to a customer for rent payment of 200, which is still
unpaid.
7. Distributed dividends to shareholders by bank transfer of 160.
8. Purchased a car with a bank transfer payment of 750.

Requirements:

• a. Determine the net profit for the company in 20X1.

• b. Determine the company’s equity as of December 31, 20X1.

Exercise 2.11 Using the data from Exercise 2.10, determine the impact of each economic
transaction on each element of the accounting equation and calculate the value of each element
after each transaction, as shown in the table below:

Assets = Liabilities + Equity

Bank Tangible Accounts Accounts Owner’s Revenue Expense Undistributed
deposits Fixed assets receivable payable equity profit
…
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