Generally Accepted Accounting Principles and Melville Company

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MBA 629
Accounting and Financial Management
Agenda for Class 2 June 9, 2006

Review of chapter 1 and questions

Practice quiz questions:

1.The Melville Company sold land for $60,000 in cash. The land was originally purchased for $40,000, and at the time of the sale, $15,000 was still owed to First National Bank on that purchase. After the sale, The Melville Company paid off the loan to First National Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?

a.assets increase $20,000; liabilities decrease $15,000; owner's equity increases $5,000 b.assets increase $5,000; liabilities decrease $15,000; owner's equity increases $20,000 c.assets increase $60,000; liabilities decrease $15,000; owner's equity increases $20,000 d.assets increase $20,000; liabilities decrease $15,000; owner's equity increases $35,000

2.The total assets and the total liabilities of a business at the beginning and at the end of the year appear below. During the year, the owner had withdrawn $50,000 for personal use and had made an additional investment of $35,000 in the business.

AssetsLiabilities
Beginning of year$295,000$190,000
End of year 355,000 220,000

The amount of net income for the year was
a.$85,000
b.$40,000
c.$135,000
d.$45,000

3.If beginning capital was $65,000, ending capital is $43,000, and the owner's withdrawals were $16,000, the amount of net income or net loss was a.net income of $37,000
b.net income of $8,000
c.net loss of $22,000
d.net loss of $6,000

4.If total liabilities decreased by $25,000 during a period of time and owner's equity increased by $30,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a.$65,000 increase

b.$5,000 decrease
c.$5,000 increase
d.$65,000 decrease

Chapter 2
Analyzing Transactions
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