Multiple choice

1. A&M Co. purchased land for $50,000 with $10,000 paid in cash and $40,000 in a note payable due three years from now. What effect does this transaction have on the accounts under the accrual basis of accounting? 

1- Net increase in assets of $40,000 and a net increase in liabilities of $40,000

2-Net increase in assets and liabilities of $50,000

3-Net increase in assets of $50,000 and a net decrease in liabilities of $40,000

4-Net increase in assets of $60,000 and a net decrease in liabilities of $40,000

2. Updating accrual accounting records prior to preparing financial statements is called 

1 the closing process.

2 converting to cash basis accounting.

3 the adjustment process.

4 going concern adjustments.

3. Accrued expenses are ordinarily reported on the balance sheet as

1 assets.

2 liabilities.

3 fixed assets.

4 prepaid expenses.

4. ABN Company sold goods, receiving $10,000 in cash and $25,000 on credit. How much revenue should it record under the accrual basis of accounting? 1

-$10,000

2- $25,000

3-$35,000

4-None at this time