CHAPTER 3

True or False:
1. F
2. F
3. T
4. T
5. F
6. T
7. F
8. F
9. F
10. T
11. T
12. F
13. F
14. F
15. T
16. T
17. T
18. T
19. T
20. T
21. F
22. T
23. F
24. T
25. T
26. F
27. F
28. T
29. T
30. F
31. T
32. F
33. T
34. F
35. T
36. T
37. F
38. T
39. T
40. F
41. F
42. T
43. T
44. F
45. F
46. T
47. F
48. F
49. T
50. F
51. T
52. F
53. F
54. T
55. T
56. T
57. F
58. F
59. T
60. T

Determine the effect. For each transaction, indicate whether assets (A), Liabilities (L) or owner’s equity (OE)
increased (+), Decreased (-) or did not change (0) by placing the appropriate sing in the appropriate column.
A. LNS Company
Item A L OE
1 + 0 +
2 + + 0
3 + 0 +
4 + 0 +
5 0 0 0
6 - 0 -
7 0 + -
8 + + 0
9 0 0 0
10 - - 0
11 - 0 -
12 - 0 -
13 - 0 -
B. Coco Chanel
Item A L OE
1 + 0 +
2 + + 0
3 0 0 0
4 + 0 +
5 + 0 +
6 0 0 0
7 - 0 -
8 + 0 +
9 0 0 0
10 - 0 -
11 - 0 -

Multiple Choice - Theories. Encircle the correct answer.

1. D
2. C
3. C
4. D
5. D
6. B
7. A
8. A
9. B
10. D
11. C
12. C
13. B
14. B
15. A
16. B
17. B
18. C
19. D
20. C
Answer the questions.
1. 247,500
Asset = Liabilities + Equity
Beginning: 260,000 125,000 135,000
During (12,500) (37,500) 25,000
Ending 247,500 87,500 160,000

2. 75,000 increase
Asset = Liabilities + Equity
Beginning: 260,000 125,000 135,000
During 30,000 75,000 (45,000)
Ending 290,000 200,000 90,000

3. 7,500
Asset = Liabilities + Equity
Beginning: 260,000 125,000 135,000
During (100,000) 27,500 (127,500)
Ending 160,000 152,500 7,500

Multiple Choice - Problems. Encircle the correct answer.

1. D.
Asset = Liabilities + Equity
100,000 40,000 60,000

2. B
Cash +AR = Liabilities + Equity
50,000 50,000 40,000 60,000
50,000 (50,000)
(20,000) (20,000)
80,000 0 20,000 60,000

3. C
Asset = Liabilities + Equity
Beginning: 250,000 100,000 150,000
During (45,000) (45,000) 0
Ending 205,000 55,000 150,000

4. A
Cash +AR = Liabilities + Equity
100,000 ? ? ?
300,000 200,000 0 500,000
150,000 (150,000)
550,000 ? ? ?

5. B
Asset = Liabilities + Equity
Beginning: 500,000 180,000 320,000
During 100,000 100,000
200,000 200,000
(50,000) (50,000)
(20,000) (20,000)
Ending 550,000

6. A
Cash +AR +Supplies = Liabilities + Equity
320,000
460,000 460,000
250,000 (250,000)
(70,000) 70,000
500,000

7. A
+P120,000 equipment – P120,000 cash = P0 effect in assets

8. C
+P1,000,000 land = increase of P1,000,000 in assets
+1,000,000 note payable = increase of P1,000,000 in liabilities

9. D
+P5,000 supplies – P5,000 cash = no effect

10. A
+5,000 supplies = increase of P5,000 in assets
+5,000 accounts payable = increase of P5,000 in liabilities

Short problem. Provide the correct answer on the blank before each number.

Cash Louie, Capital

500,000 50,000 25,000 500,000
30,000 5,000
Machinery
50,000 Accounts payable
Supplies
100,000 20,000
on hand Transportation expense
50,000 50,000
Accounts
20,000 25,000
receivable Service
20,000
5,000 revenue
20,000
380,000
5,000 30,000
50,000 475,000
5,000
50,000 1. 380,000
100,000
25,000
20,000 5,000 5,000
50,000 2. 520,000
3. 5,000
4. 525,000
5. 50,000

Balancing the Accounting Equation. Determine the effect of the following transactions on the accounting
equation.

1. 1,500,000
2. 3,300,000
3. increase by 300,000
Asset = Liabilities + Equity
Beginning: 3,000,000 2,000,000 1,000,000
During 300,000 (200,000) 500,000
Ending 3,300,000 1,800,000 1,500,000

4. [100%] assets = [60% of assets] liabilities + [40% of assets] equity

900,000 = 40% of assets

Assets = 900,000 / 40%
Assets = 2,250,000

5. 220,000 + 50,000 – 30,000 = 240,000

6.
Asset = Liabilities + Equity
Beginning: 710,458 262,479
During 77,822 53,298 24,524
Ending 287,003

7.
Asset = Liabilities + Equity
Beginning: 190,000 100,000 90,000
During 40,000 (25,000) 65,000
Ending 230,000 75,000 155,000

8. 500,000 x 65% = 325,000

9. 3,500,000 x ¾ = 2,625,000

10. 100,000 / 40% = 250,000 assets

250,000 x 60% = 150,000 liabilities

11.
Asset = Liabilities + Equity
Beginning: 1,200,000 850,000 350,000
During 60,000 (170,000) 18,200
(8,020)
Net income 219,820
Ending 1,260,000 680,000 580,000

12. +54,000 = +14,500 +40,000

13. net loss

14. (4,000)
Asset = Liabilities + Equity
Beginning: 100,000
During Net loss (4,000)
Ending 155,000 59,000 96,000

15. 110,000 = 75,000 + 35,000

16. 190,000 = 140,000 + 50,000

17. +30,000 = +20,000 +10,000

18. net income

19. 24,000
Asset = Liabilities + Equity
Beginning: 45,000
During Net income 24,000
Ending 140,000 71,000 69,000

20. 110,000 = 73,000 + 37,000