Question

A) Which of the following statements is true?

	A.	A credit to Utilities Expense would decrease Retained Earnings.
	B.	Cash, Dividends, Accumulated Depreciation, and Wage Expense all have debit balances.
	C.	Expenses are increased with a debit, and decrease stockholders’ equity.
	D.	The issuance of stock decreases a company’s assets and increases its stockholders’ equity.
	E.	If a company purchases inventory on account, its total assets will not change.

B)

A company completes a job for which it had previously been paid.  What is the effect on its financial statements?

	A.	Assets increase and Liabilities increase.
	B.	Liabilities decrease and Stockholders’ Equity increases.
	C.	Liabilities increase and Stockholders’ Equity decreases.
	D.	Liabilities decrease and Assets decrease.
	E.	There will be no effect on its financial statements.

Answer 1

Q1.

Answer is C. Expense are increased with a debit and decrease Stockholder's equity.

Explanation:

Expense has a debit balance as a normal balance. To Increase the expense, the account need to be debited and with the increased expense, the net income decreases which the decreases the retained earnings and equity amount.

Q2.

Answer is B. Liabilities decrease adn Stockholder's equity increases.

Explanation:

Unearned revenue received earlier shall be reduced with the service provided which will decrease the laibility. also, the revenue increased with the service provided which will increase the stockholder's equity.