Assessment on the Accounting Equation Overview

3/16/2020 Assessment 1 BUS-FP3061 – Winter 2020 – Section 02 1/5
Assessment 1
Accounting Equation
Complete a 3-part assessment that requires you to think critically to categorize business transactions, apply
knowledge about the accounting equation, and identify accounting conventions for business scenarios.
This assessment was designed to enhance your understanding of the foundation of accounting procedures and
By successfully completing this assessment, you will demonstrate your proficiency in the following course
competencies and assessment criteria:
Competency 1: Define accounting and its application to accounting principles.
Analyze how each business transaction affects the accounting equation.
Competency 2: Apply accounting cycle strategies to manage business financial events.
Apply calculations to determine the solution for accounting equation scenarios.
Analyze accounting scenarios to determine the appropriate accounting convention using ethical
decision making.
Competency Map
Use this online tool to track your performance and
progress through your course.
Accounting is often called the language of business, and rightfully so, because all business organizations set up
an accounting information system to communicate data to help individuals make better decisions. These
individuals are members of two important groups: external users and internal users.
External users represent a group that is not directly involved in running an organization. However, they are
invaluable to the smooth running of the organization’s moving parts. They are shareholders, lenders, customers,
suppliers, regulators, brokers, and the media. This group is characterized by its need for financial accounting
Internal users of accounting information are those directly involved in managing and operating an organization.
This group is characterized by its need for managerial accounting data.
Details Attempt 1 Available Attempt 2 Attempt 3
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3/16/2020 Assessment 1 BUS-FP3061 – Winter 2020 – Section 02 2/5
Questions to Consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a
fellow learner, a work associate, an interested friend, or a member of the business community.
What are five terms that you consider to be associated with assets (what a business owns)?
Consider each term and why it should be included as an asset in a business organization.
Required Resources
The following resources are required to complete the assessment.
Capella Resources
Click the links provided to view the following resources:
Assessment 1 Template.
Suggested Resources
The following optional resources are provided to support you in completing the assessment or to provide a
helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left
navigation menu of your courseroom.
Capella Multimedia
Click the links provided below to view the following multimedia pieces:
Financial Documents.
Films on Demand Video
Click the following link to view a video purchased through Films Media Group for use in this Capella course. Any
distribution of video content or associated links is prohibited.
The Big Lie: Inside the Rise and Fraud of WorldCom.
This video addresses ethics in accounting.
Library Resources
The following e-books or articles from the Capella University Library are linked directly in this course:
Fields, E. (2011). The essentials of finance and accounting for nonfinancial managers (2nd ed.). New York,
Course Library Guide
A Capella University library guide has been created specifically for your use in this course. You are encouraged to
refer to the resources in the BUS-FP3061 Fundamentals of Accounting Library Guide to help direct your
Internet Resources
Access the following resources by clicking the links provided. Please note that URLs change frequently.
Permissions for the following links have been either granted or deemed appropriate for educational use at the
time of course publication.
Accounting Basics for Students. (2013). Retrieved from
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3/16/2020 Assessment 1 BUS-FP3061 – Winter 2020 – Section 02 3/5
Bean Counter’s Free Accounting & Bookkeeping Tutorial Site. (n.d.). Retrieved from
Additional Resources
The resources listed below are relevant to the topics and assessments in this course and are not required.
McCrary, S. A. (2010). Mastering financial accounting essentials: The critical nuts and bolts. Hoboken, NJ:
Mullis, D., & Orloff, J. (2008). The accounting game: Basic accounting fresh from the lemonade stand.
Naperville, IL: Sourcebooks.
Shim, J. K., & Siegel, J. G. (2010). Dictionary of accounting terms (5th ed.). Hauppauge, NY: Barrons
Educational Series.
Assessment Instructions
This assessment includes three parts. Use the Assessment 1 Template, which is an Excel workbook and is
linked in the Resources under the Required Resources heading, to complete all three parts. You will find each
of the three assessment parts under a separate worksheet in the template.
Part 1: Basic Accounting Equation Effects
Count everything, or almost everything. Just about every event that happens in a business results in changes
to the assets, liabilities, or equities. For this reason, it is critical for the accountant to analyze how every
business event affects the basic accounting equation, and how every event must be managed. Part 1 of the
assessment is a good test of your critical thinking skills as you apply them to the components of the
accounting cycle, in particular the basic accounting equation for the balance sheet.
Given below is a list of 15 business transactions. Using Part 1 of the Assessment 1 Template, indicate whether
each transaction increased (+), decreased (), or had no effect (NE) on assets, liabilities, and owner’s equity.
1. Purchased supplies on account.
2. Received cash for providing a service.
3. Paid expenses in cash.
4. Received an investment of cash from the owner.
5. Experienced a cash withdrawal by the owner.
6. Received cash from a customer who had previously been billed for services provided.
7. Paid cash to purchase equipment.
8. Paid employee salaries.
9. Paid a creditor from whom the business had previously purchased supplies on account.
10. Sold new shares of stock.
11. Paid cash for monthly rent on the office space.
12. Paid cash for monthly utility bills.
13. Performed services on account.
14. Made a payment on a loan received from the bank.
15. Purchased for cash merchandise that will be later resold for profit.
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3/16/2020 Assessment 1 BUS-FP3061 – Winter 2020 – Section 02 4/5
Part 2: Missing Accounting Equation Data
The accounting equation requires that it always be kept in balance after a business transaction has been
processed. This requires the accountant to have applied knowledge of all parts of the equation and to be able
to critically analyze when the equation is not in balance. Part 2 of the assessment provides you an opportunity
to apply your accounting equation intelligence quotient.
Using your knowledge about the accounting equation, answer the following questions in Part 2 of the
Assessment 1 Template. Be sure to show your calculations.
1. The liabilities of the Smith Company are $120,000 and its owner’s equity is $232,000. What is the
amount of the company’s total assets?
2. The total assets of the Jones Company are $190,000 and its owner’s equity is $91,000. What is the
amount of the company’s total liabilities?
3. The total assets of the Greene Company are $800,000 and its liabilities are equal to one-half of its total
assets. What is the amount of the company’s owner’s equity?
4. Beginning the new year, the Orange Company had total assets of $800,000 and total liabilities of
$300,000. If total assets increased by $150,000 during the year and total liabilities decreased by
$80,000, what is the owner’s equity total at the end of the year?
5. Beginning the new year, the Orange Company had total assets of $800,000 and total liabilities of
$300,000. If, during the year, the Orange Company’s total liabilities increased by $100,000 and its
owner’s equity decreased by $70,000, what is the company’s ending amount of total assets?
6. Beginning the new year, the Orange Company had total assets of $800,000 and total liabilities of
$300,000. If total assets decreased by $80,000 and its owner’s equity increased by $120,000 during the
year, what is the company’s year-end total liabilities amount.
Part 3: Accounting Conventions and Principles
Accounting conventions represent the principles, assumptions, and rules that guide an accountant as he or
she analyzes the effects of business events on the accounting cycle and applies them to various cycle
procedures. Part 3 of the assessment requires you to determine which of these conventions apply to a given
business scenario to enhance your understanding of the foundation of accounting procedures and processes.
Using Part 3 of the Assessment 1 Template, identify the applicable accounting convention for each of the
following business scenarios. More than one convention may apply to each scenario. Explain your choices for
each scenario.
Before completing the scenarios consider and describe what role ethics has throughout the accounting
process and reporting to internal and external customers. Throughout your assessments ensure that you apply
ethics to your decision making and reporting.
Scenario 1: The Acme Company is undergoing a reorganization to improve its financial structure. As
part of this process, the company is considering lowering its expense calculations to improve the
bottom line net income.
Scenario 2: Regal Enterprises has purchased $45,000 worth new equipment for use in its
manufacturing operations and would like to write off the cost of this equipment in just a couple of
years, instead of the usual 10 years for this equipment type. The company’s president fears that the
economic conditions in its industry will worsen and cause the company to sell the equipment sooner
than expected.
Scenario 3: Bozrah Industries, a small independent retailer, wants to change its accounting system from
cash-based to accrual-based, and is concerned about how this change will affect the recording of sales
and expenses.
Scenario 4: Randolph, Inc., has experienced major turnover in its accounting department, and the new
head of accounting has been going through the current records of transactions. A couple of those
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3/16/2020 Assessment 1 BUS-FP3061 – Winter 2020 – Section 02 5/5
transactions appear problematic. The first contains an error of $10,000 that the previous accountant
decided was not large enough to adjust before the financial statements were prepared. This error
would understate income and make the company look more profitable than it actually is.
Scenario 5: The Morrison Company receives much of its revenue from those customers who buy or rent
furniture and appliances on the installment plan. Because the company uses an accrual-based
accounting system, revenue is recognized at the point of sale, even though cash comes in on a monthly
basis from customers. Lately, the company’s accountant is questioning the use of the accrual basis for
recognizing revenue, because several customers have defaulted on their contracts, causing problems in
the accounting system.
Scenario 6: Charter Communications has recently found itself at the wrong end of multiple lawsuits for
failure to provide necessary services according to their contractual obligations. Senior management
does not want to disclose the potential liability of these lawsuits on its financial statements.
Submit the Assessment 1 Template with all three parts completed.
How to use the scoring guide
Accounting Equation Scoring Guide
Use the scoring guide to enhance your learning.
This button will take you to the next available assessment
attempt tab, where you will be able to submit your assessment.
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