1. Applying the accounting equation (15 points)

1. Total assets of Charter Company equal $700,000 and its equity is $420,000. What is the amount of its liabilities?
2. Total assets of Martin Marine equal $500,000 and its liabilities and equity amounts are equal. What is the amount of its liabilities? What is the amount of its equity?

2. Identifying Financial Statements (10 points)

Indicate in which financial statement each item would most likely appear: income statement (I), balance sheet (B), statement of owners equity (E), or statement of cash flows (CF).

• a. Assets
• b. Cash from operating activities
• c. Withdrawals
• d. Equipment
• e. Expenses
• f. Liabilities
• g. Net decrease (or increase) in cash
• h. Revenues
• i. Total liabilities and equity

3. Analyze debit or credit by account (10 points)

Identify whether a debit or credit yields the indicated change for each of the following accounts.

1. To increase Land
2. To decrease Cash
3. To increase Fees Earned (Revenues)
4. To increase Office Expense
5. To decrease Unearned Revenue
6. To decrease Prepaid Rent
7. To increase Notes Payable
8. To decrease Accounts Receivable
9. To increase Owner, Capital
10. To increase Store Equipment

4. Computing cash and accrual income (10 points)

In its first year of operations, Roma Co. earned $45,000 in revenues and received $37,000 cash from these customers. The company incurred expenses of $25,500 but had not paid $5,250 of them at year-end. The company also prepaid $6,750 cash for costs that will not be expensed until the next year.

Calculate the first year's net income under both the cash basis and the accrual basis of accounting.

5. Identifying inventory costs (10 points)

Costs of $5,000 were incurred to acquire goods and make them ready for sale. The goods were shipped to the buyer (FOB shipping point) for a cost of $200. Additional necessary costs of $400 were incurred to acquire the goods. What is the buyer's total cost of merchandise inventory?