For the Following Transaction, Identify the Type of Change That

question 14

Multiple Choice

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
A new CEO was appointed to commence in three months' time on a salary of $400 000 per annum.

• A) A liability increased and another liability decreased.
• B) An asset decreased and a liability decreased.
• C) An asset increased and revenue increased.
• D) This had no effect on the accounting equation.

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Definitions:

Understated

Describes an amount reported lower than it actually is, either in financial statements or any other reporting context.

Overstated

Refers to financial statements or figures being reported as more than their actual or true value.

Cost-to-retail Ratio

A method used to estimate the value of ending inventory and cost of goods sold by comparing the cost of goods available for sale to the retail price of the goods.