Answer: 1. 2. 3. 4. 5. 1. Which statement below best describes the accounting equation? A. The change in retained earnings equals profit less dividends. B. Equality of revenue and expense transactions over time. C. Financing activities equal investing and operating activities. D. Resources of the company equal creditors and owners' claims to those resources. 2. Potato Inc. provided consulting services to a customer on account for $500 on March 3. On April 16, Potato collected the cash from that customer. What is the impact on Potato's accounting equation from the collection of cash? A. No net effect to the accounting equation. B. Decrease assets and increase liabilities. C. Increase assets and increase liabilities, D. Decrease assets and decrease liabilities. 3. British Airways collected cash on February 14 from the sale of a ticket to a customer on January 28. The flight took place on March 10. According to the Recognition Principle in which month should British Airways recognized this revenue? A. January B. February C. March D. Evenly in each of the three months. 4. Posting is the process of updating information from the A. ledger to the journal. B. journal to the ledger C. journal to the statement of financial position D. income statement to the statement of financial position. 5. The Dividends account is increased with a debit because dividends A. are an expense. B. are declared an asset. C. reduce liabilities. D. result in a decrease in equity, so debiting Dividends would have the effect of decreasing Equity -End of Section A - QUESTION 1 (33 marks) Adjusted Trial Balance of Smart Company as at December 31, 2020 is shown below: Smart Company Adjusted Trial Balance December 31, 2020 Credit Debit $ 15,300 5,850 360 700 2,600 Cash Accounts receivable Supplies Prepaid insurance Machinery Accumulated depreciation - Machinery Unearned revenue Salary payable Share capital Retained earnings Dividends Sales revenue Insurance expense Salary expense Miscellaneous expense Depreciation expense Total $ 1,650 10,000 400 5,200 1.940 500 13,250 120 6.210 340 460 S32,440 $32,440 Required: (a) Prepare the Income Statement of Smart Company for the year ended December 31, 2020. (7 marks) (b) Prepare the Statement of Retained Earnings of Smart Company for the year ended December 31, 2020 (4 marks) (c) Prepare the Statement of Financial Position of Smart Company as at December 31, 2020. (11 marks) (d) Prepare the necessary closing entries for Smart Company at December 31, 2020. (Explanation of Journal Entry is not required.) (11 marks) QUESTION 2 (10 marks) For each of the following situations, state the accounting principle or concept has been applied or violated AND provide an explanation (a) ABC company signed a 2-year rental contract with a tenant starting from 1 January 2020. Monthly rent income was $10,000. The tenant was required to pay the rent on the first day of every month. During the financial year ended December 31, 2020, the company received a total of $110,000 rent income. The bookkeeper of ABC company recorded this $110,000 as the rental revenue for the year ended December 31, 2020. (1) Accounting Principle / Concept Applied OR Violated (ii) Explanation: (b) The company bought a calculator costing S40. After taking a course in accounting, the bookkeeper thought that it would be correct to spread the cost of the calculator over its 4 years of useful life. (1) Accounting Principle / Concept Applied Or Violated (ii) Explanation