Chapter 3

The Accounting Equation

NAME: Date:
Professor: Section: Score:

QUIZ: MULTIPLE CHOICE

1. It is an economic resource controlled by the entity that has resulted from past events and has a
potential to produce economic benefits.
a. Asset c. Equity
b. Liability d. Income

2. The term ‘economic resource’ connotes

a. an asset. c. an equity.
b. a liability. d. all of these

3. The term ‘present obligation’ connotes

a. an asset. c. an equity.
b. a liability. d. all of these

4. The claim of the owner(s) on the total assets of an entity is also called
a. assets. c. equity.
b. liabilities. d. profit.

5. It is a present obligation that has resulted from past events and has the potential to cause a
transfer of an economic resource in its settlement.
a. asset. c. expense.
b. liability. d. income.

6. A business owner’s contribution to the business results in

a. an increase in assets and an increase in income.
b. a decrease in assets and an increase in owner’s equity.
c. an increase in assets and an increase in liabilities.
d. an increase in assets and an increase in owner’s equity.

7. Indicating to others, through your past action, that you will accept and discharge certain
responsibilities, thereby creating an expectation on them that you will do so, creates an
obligation called
a. legal obligation.
b. construction obligation.
c. indicative obligation.
d. constructive obligation.

8. A decrease in the economic benefits of a resource would be treated as

a. asset. c. expense.
b. liability. d. income.

1
9. Which of the following would not give rise to income?
a. enhancement in the value of an asset
b. decrease in liabilities
c. investment by the business owner to the business
d. all of these

10. In which of the following did a loss occur?

ASSETS = LIABILITIES + EQUITY + INCOME -
EXPENSES
a. ₱920,000 ₱710,000 ₱290,000 ₱440,000 ₱520,000
b. ₱870,000 ₱310,000 ₱240,000 ₱470,000 ₱150,000
c. ₱890,000 ₱240,000 ₱240,000 ₱600,000 ₱190,000
d. ₱740,000 ₱530,000 ₱170,000 ₱1,900,000 ₱1,860,000

11. In accounting, a negative amount is normally presented

a. beginning with a minus sign.
b. as a squeezed amount.
c. in parentheses.
d. negatively.

12. Assets and liabilities result from

a. past events.
b. future events.
c. income and expenses.
d. life events.

13. Which of the following is incorrect regarding profit?

a. Profit is measured only indirectly as an arithmetical difference.
b. Profit is the excess of total income over total expenses.
c. Profit increases equity.
d. Profit is earned if total income is less than total expenses.

14. A business incurs total expenses of ₱630,000 and reports loss of ₱270,000. How much is the total
income?
a. 900,000
b. 320,000
c. 380,000
d. 360,000

15. Which of the following would result to total expenses of ₱480,000?

a. Total income of ₱360,000 and profit ₱120,000
b. Total income of ₱580,000 and loss of ₱100,000
c. Total income of ₱630,000 and profit of ₱150,000
d. Total income of ₱630,000 and loss of ₱150,000

16. Which of the following is a correct accounting equation?

ASSETS LIABILITIES EQUITY

a. ₱460,000 ₱190,000 ₱170,000

2
b. ₱230,000 ₱150,000 ₱70,000
c. ₱1,120,000 ₱990,000 ₱130,000
d. ₱1,020,000 ₱510,000 ₱410,000

17. Which of the following is a correct accounting equation?

ASSETS LIABILITIES EQUITY INCOME EXPENSES

a. ₱920,000 ₱710,000 ₱290,000 ₱440,000 ₱420,000
b. ₱870,000 ₱310,000 ₱240,000 ₱570,000 ₱150,000
c. ₱890,000 ₱240,000 ₱340,000 ₱600,000 ₱190,000
d. ₱740,000 ₱530,000 ₱170,000 ₱1,900,000 ₱1,860,000

18. Entity A had total assets, liabilities, and equity of ₱130M, ₱80M and ₱50M, respectively, at the
beginning of the period. During the period, Entity A’s total liabilities decreased by ₱20M, while
its profit was ₱25M. There were no other transactions or events that affected equity during the
period. How much is Entity A’s ending total assets?
a. ₱95M
b. ₱135M
c. ₱85M
d. ₱125M

19. Entity A had total assets, liabilities, and equity of ₱150M, ₱90M and ₱60M, respectively, at the
beginning of the period. During the period, Entity A’s total liabilities decreased to ₱40M, while
its profit was ₱25M. There were no other transactions or events that affected equity during the
period. How much is Entity A’s ending total assets?
a. ₱75M
b. ₱115M
c. ₱95M
d. ₱125M

20. Entity A had total assets of ₱120M and total liabilities of ₱80M at the beginning of the period. If
at the end of the period, total assets increased by ₱30M, while total liabilities remained the same,
Entity A’s total equity at the end of the period would be
a. ₱70M
b. ₱90M
c. ₱60M
d. ₱80M

21. Entity A had total assets and total liabilities of ₱120M and ₱85M, respectively, at the beginning
of the period. During the period, Entity A earned total income of ₱60 and incurred total expenses
of ₱45. How much is Entity A’s ending total equity?
a. ₱60M
b. ₱90M
c. ₱50M
d. ₱120M

22. Entity A had total assets and total liabilities of ₱150M and ₱80M, respectively, at the beginning
of the period. During the period, Entity A earned total income of ₱60 and incurred total expenses

3
 of ₱40. Entity A’s total assets decreased to ₱130M by year-end. There were no additional
contributions by, or distributions to, the owner during the period. How much is Entity A’s
ending total liabilities?
a. ₱60M
b. ₱80M
c. ₱70M
d. ₱40M

23. Entity A has ending total assets of ₱90M and ending total liabilities of ₱60M. Entity A had a
beginning equity of ₱10M. If Entity A earned total income of ₱45M during the year, how much
were the total expenses?
a. ₱0
b. ₱20M
c. ₱15M
d. ₱25M

24. Entity A has ending total assets of ₱150M and ending total liabilities of ₱90M. Entity A had a
beginning equity of ₱30M. If Entity A incurred total expenses of ₱50M during the year, how
much was the total income?
a. ₱90M
b. ₱40M
c. ₱50M
d. ₱80M

25. At year-end, Entity A’s total assets and total liabilities are ₱190M and ₱70M, respectively. If
Entity A had a beginning equity of ₱145M and there were no contributions from, or distributions
to, the owner during the period, how much profit (loss) did Entity A earn (incur) during the
year?
a. ₱35M
b. ₱25M
c. (₱35M)
d. (₱25M)

“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.”
- Malcolm X

- END –

4
KEY ANSWERS & SOLUTIONS:
1. A
2. A
3. B
4. C
5. B
6. D
7. D
8. C
9. C
10. A
11. C
12. A
13. D
14. D
Solution:
Income less Expenses = Profit (Loss)
? – 630,000 = (270,000)
? = 360,000

15. C
Solution:
630,000 – 150,000 = 480,000 expense (checking: 630,000 income – 480,000 expenses = 150,000 profit)

16. C

17. D

18. B
Solution:
Assets = Liabilities + Equity
Beg. 130 = 80 + 50
Decrease in liabilities/ Profit (20) 25
End. ? = 60 + 75

Answer: Ending total assets = (60 liabilities, end. + 75 equity, end.) = 135

19. D
Solution:
Assets = Liabilities + Equity
Beg. Irrelevant = Irrelevant + 60
Profit Irrelevant 25
End. ? = 40 + 85
Answer: Ending total assets = (40 liabilities, end. + 85 equity, end.) = 125

20. A
Solution:

5
 Assets = Liabilities + Equity
Beg. 120M = 80M + 40M*
Increase in assets/Profit 30M - Irrelevant
End. 150M = 80M + ?

* squeezed amount

Answer+: Ending total equity = (150 assets, end. - 80 liabilities, end.) = 70

21. C
Solution:
Assets = Liabilities + Equity
Beg. 120 = 85 + 35*
Income less expenses (60 – 45) Irrelevant Irrelevant 15
End. Irrelevant = Irrelevant + 50

* squeezed amount

22. D
Solution:
Assets = Liabilities + Equity
Beg. 150 = 80 + 70*
Income less expenses (60 – 40) Irrelevant Irrelevant 20
End. 130 = 60 + 90

* squeezed amount

Answer: Ending total liabilities = (130 assets, end. - 90 equity, end.) = 40

23. D
Solution:

Step 1:
Assets, end. 90 – Liabilities, end. 60 = Equity, end. 30

Step 2:
Equity, beginning (given) 10
Add: Income (given) 45
Less: Expenses (squeeze) (25)
Equity, ending (see Step 1) 30

24. D
Solution:

Step 1:
Assets, end. 150 – Liabilities, end. 90 = Equity, end. 60

Step 2:
Equity, beginning (given) 30
Add: Income (squeeze) 80

6
Less: Expenses (given) (50)
Equity, ending (see Step 1) 60

25. D
Solution:

Step 1:
Assets, end. 190 – Liabilities, end. 70 = Equity, end. 120

Step 2:
Equity, beginning (given) 145
Profit (Loss) squeeze (25)
Equity, ending (see Step 1) 120