Question

1. If total liabilities increased by $100,000 and stockholders’ equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

Question 1 options:

	$100,000 increase
	$130,000 decrease
	$30,000 decrease
	$130,000 increase

2. Meat and Liquor Corp. has five plants nationwide that cost $400 million to build. The current fair market value of the plants is $550 million. The plants are listed for sale at $600 million. The plants will be reported as assets at

Question 2 options:

	$516.7 million
	$600 million
	$400 million
	$500 million

3. Which of the following is an advantage of the corporate form of business organization?

Question 3 options:

	Favorable tax treatment
	Easier to start than other forms
	Simpler to run
	No personal liability

4. Sale of $100 on account results in

Question 4 options:

	A debit to accounts receivable and a credit to revenues
	a credit to accounts receivable and a debit to cash
	a credit to accounts receivable and a debit to revenues
	a debit to accounts receivable and a credit to cash

Answer 1

Question 1: $130,000 increase

Solution:

Assets = Liabilities + Equity

Assets = +100000 + 30000

Assets = +130000

That means assets increases by $130000

Question 2: $400 million

Explanation:

When assets held for sale then assets are recognized at cost or fair market value less cost of sale whichever is low. So out of $550 million and $400 million, $400 million is lower. When assets are not held for sale then the assets are continued to be recognized at cost less depreciation.

Question 3: No personal liability

Explanation:

For a corporate organization there is a feature called 'separate legal entity' which means the owners of business i.e. shareholders are different from the business. This leads to further feature of no personal liability. That means shareholders are not liable for outsiders in excess of their investment in the business.

Favorable tax treatment is not an advantage because many times governments collets major portion of tax from companies

Easier to start than other forms is also not an advantage because it involves many guidelines to follow. Simpler to run s also not an advantage because decisions are based on meetings and collective opinions.

Question 4: A debit to accounts receivable and a credit to revenues

Explanation:

Because to record the amount receivable from buyer, an asset is debited with the name Accounts receivables and to record the income of sales Revenue account is credited.

Cash cant be debited as sale is on account, That means cash is yet to be received

Accounts receivables cant be credited as it is an asset, to increase an asset is debited and not credited.

Similarly, revenue account cant be debited as it is an income, to increase an income is credited and not debited.