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1. With respect to shareholders equity, which of the following statements is true?

A. It represents assets minus liabilities.

B. It is only affected by owners investing capital in their business or owners taking money out of the business.

C. It reflects the owners liquidity in the business.

D. It does not change once owners invest and the business starts operations.

E. None of the above statements are true.

2. A restaurant buys $800 of wine on 30 days credit in July, the following will occur in July:

A. Expenses will increase by $800 and accounts payable will increase by $800.

B. Expenses will increase by $800 and the restaurants bank account will decrease by $800.

C. Wine inventory will increase by $800 and Dr. J.s bank account will decrease by $800.

D. Cost of wine sales will increase by $800 and accounts payable will increase by $800.

E. Wine inventory will be increased by $800 and accounts payable will be increased by $800

3. On June 1, Oliver purchased a new vacuum cleaner for $12,000. Oliver paid $8,000 in cash and the vacuum cleaner supplier extended 30 days credit for the balance. Which of the following is the accounting entry to record the transaction?

A. Debit cleaning equipment $12,000, credit cash $12,000.

B. Debit cleaning equipment $8,000, credit cash $8,000.

C. Debit cleaning equipment $12,000, credit cash $8,000, credit accounts receivable $4,000.

D. Debit cleaning equipment $12,000, credit cash $8,000, credit accounts payable $4,000.

E. None of the above

4. In double-entry accounting,

A. with respect to balance sheet accounts: asset accounts normally have a debit balance, liability and owners equity accounts normally have a credit balance.

B. with respect to profit and loss accounts: revenue accounts have a credit balance, and expense accounts have a debit balance.

C. for every set of debit entries, there must be a set of credit entries with the same monetary value.

D. a cash inflow, debits the cash account. For a cash outflow, we credit the cash account.

E. All the above statements are true.

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