Week 2 Quiz

One of the bicycle shop's two founders buys groceries for home with personal cash. Why does this purchase not appear in the shop's records?

Select one.

• The founder paid less than the shop's smallest transaction amount
• The shop is a corporation, an entity separate from its owners, so only its own events are recorded
• Personal purchases are recorded only at the end of the month, after the twelve transactions
• Groceries are expenses, and expenses never change the accounting equation

The founders invest $30,000 cash and receive 30,000 shares of $1-par common stock. Which form of business organization does the shop's Common Stock account tell you it has?

Select one.

• A partnership, because there are two founders
• A sole proprietorship, because the shop is small
• A corporation, which issues shares of stock to its owners
• A nonprofit, because the founders took no salary in Month 1

Which of the bicycle shop's Month 1 accounts is a liability?

Select one.

• Prepaid Insurance
• Accounts Receivable
• Equipment
• Unearned Revenue

On Day 2 the shop pays $12,000 cash for repair equipment. What is the effect on the accounting equation?

Select one.

• Cash −$12,000 and Equipment +$12,000; total assets unchanged
• Cash −$12,000 and retained earnings −$12,000 through an expense
• Equipment +$12,000 and Accounts Payable +$12,000
• Equipment +$12,000 and Common Stock +$12,000

On Day 6 a cycling club pays the shop $1,200 in advance for a season of tune-ups the shop has not yet performed. Which accounts change?

Select one.

• Cash +$1,200 and retained earnings +$1,200 through service revenue
• Cash +$1,200 and Unearned Revenue +$1,200
• Accounts Receivable +$1,200 and Unearned Revenue +$1,200
• Cash +$1,200 and Common Stock +$1,200

On Day 25 the delivery company pays $1,000 of what it owes the shop for repairs done on Day 18. What happens to stockholders' equity on Day 25?

Select one.

• It rises $1,000, because service revenue is earned when the cash arrives
• It falls $1,000, because Accounts Receivable falls
• It does not change, because one asset rises and another falls by $1,000
• It rises $1,000, because Cash is part of stockholders' equity

In Month 1 the shop earns $3,500 of revenue from walk-in customers in cash and $1,800 from a delivery company on account, pays $1,500 rent and $1,600 wages, and pays a $500 dividend. What is the month's total effect on retained earnings?

Select one.

• $2,200
• $2,700
• $5,300
• $1,700

After all twelve Month 1 transactions, the shop holds $17,100 of cash, owes $1,500 to creditors, and has total assets of $33,200. What is total stockholders' equity?

Select one.

• $31,700
• $17,100
• $30,000
• $15,600

True or false: when the shop pays its shareholders a $500 cash dividend on Day 30, the dividend is one of the shop's expenses for Month 1.

True or false.

• True
• False

Which of these Month 1 transactions leave total stockholders' equity unchanged? Select all that apply.

Select every option that applies.

• Day 3: buys $900 of supplies on account
• Day 4: pays $2,400 for a 12-month insurance policy
• Day 15: collects $3,500 cash for repairs done that day
• Day 22: pays $600 of the $900 owed for supplies
• Day 28: pays $1,600 wages to the part-time mechanic