AFD Practice Quiz.

1.The owner of a business transferred her private car into the business for use by her staff. What
would the effect of this transaction be?

A.Decrease owner's capital and increase assets

B.Increase assets and increase liabilities

C.Increase owner's capital and increase assets

D. Decrease assets and decrease liabilities

2. If total liabilities decreased by Rs. 25.000 and shareholders' equity increased by Rs. 5,000 during a
period, then total assets must change by what amount and direction during that same period?

A. Rs. 20.000 increase

B.Rs. 20,000 decrease

C.Rs. 30,000 increase

D. Rs. 30.000 decrease

3. Which of the following would be reported on the Profit and Loss Account for Year 2?

A. Supplies that were purchased and used in Year 1 but paid for in Year 2

B. Supplies that were purchased in Year 1 but used in Year 2

C. Amount paid for Supplies during year 2

D. Amount owed for Supplies as of December 31, Year 2

4. Universal Corp. has Retained Earnings at the beginning of year I of Rs. 80,000, cash flows from
operating activities during year 1 of Rs. 35.000, dividends paid during year 1 of Rs. 5,000, net profit
for year 1 of Rs. 50,000, and Share Capital at the end of year I of Rs. 15.000. What is the amount of
its Retained Earnings at the end of the year?

A.Rs. 125.000

B. Rs. 140.000

C. Rs. 160.000

D. Rs. 175,000

(Working R.E = 80,000 – D 5000 + N.P 50,000 = 1,25,000)

5. On April 5. 2020. MM Company received cash of Rs. 30.000 as an advance towards supply of
goods to be delivered in August 2020. Consider the following four statements:

i. No effect on liabilities

ii. An increase in assets of Rs. 30 000

iii. An increase in liabilities of Rs. 30,000

iv. A decrease in liabilities of Rs. 30.000

This transaction will result in which of the following on April 5. 2020

A. Both i. and ii

B. Both il. & ili.

C Both ill and is

D Both in and iv

6. DP rented an office space to CP for three months at Rs. 500 per month, payable at the end of the
third month, January 31, 2020. No year-end adjusting entry was recorded on December 31, 2019. As
a consequence of this oversight, in the books of DP:

A. assets were overstated and profit was overstated

B. assets were overstated and profit was understated

C. assets were understated and profit was overstated

D. assets were understated and profit was understated

7. A transaction increases both assets and liabilities of a business by 5000. Which of the following
could be the transaction using the accounting equation?

Response:

a. Received 5.000 from a customer for services provided earlier

b .Repaid 5,000 of borrowing taken earlier

c. Salary to employees is payable 5,000

d. Acquired a computer worth 10,000, paid 50% in cash

8.During 2020, Chandra Company incurred operating expenses of 200,000. of which 150,000 was
paid in cash. The balance will be paid in 2021. The

operating expenses will have which of the following impacts on the Accounting Equation?

a. Decrease Shareholders equity by 150,000: Decrease Assets by 150,000

b. Decrease Assets by 200,000; Decreases Shareholder's Equity by 200,000

c. Decrease Shareholder's Equity by 200,000: Decrease Assets by 150,000:

Increase Liabilities by 50,000

D. Decrease Assets by 200,000; Increase Liabilities by 50,000; Decrease

Shareholder's Equity by 150,000

9. ABC Lid paid in cash Rs. 43000 to its employees during the month of April. Of this amount Rs. 4000
was salary for the month of March. It also included

an advance salary for May, Rs 8200/- A few employees were not paid for April salary Rs. 5500/-
What is the salary expenses for the month of April ?

a.36300

b.30800

c.44500

d.40300

10. Suppose a Wedding hall received a 5,000 advance on February 1st for a wedding reception to be
held on June 15th of the same year. Assuming the wedding reception is held on June 15th, which of
the following statements is true for the accounts of the Wedding hall?

a. No journal entry would be made on February 1st for the 5,000 advance since it is not vet earned
on February 1.

b. The 5,000 advance would be recorded as rental revenue on February 1st

c. The wedding hall's June 30th balance sheet would show a Customer Deposit amount

of 5000 for this situation

c. The wedding hall's June 30th profit and loss account would show Rental Revenue of 5000 for this
situation.

d. The wedding hall's June 30th balance sheet would show a Customer Deposit amount

of 5,000, and the profit and loss account would show Rental Revenue of 5000

for this situation.

11. If a Trial Balance, extracted from a double entry system of an organization shows that the total of
the debit balances equals the total of the credit balances

then:

a.The business is profitable

b.An equal debit for every credit must have been posted and the accounts correctly

totalled.

c.No errors have been made in posting the transactions of the business.

d.The books are correct.