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I. Question One ( 30 marks ) • Please read all questions carefully. State all assumptions clearly. • Please indicate whether the statements given below are true (T) or false (F). ----- 1. The a... ccounting equation should be in balance only at the end of the year when the income of the period is determined. ----- 2. According to the going concern concept, unless strong evidence exists to the contrary, the accounting reports are prepared on the basis that the business entity will continue operations into indefinite future. ----- 3. The prepaid insurance account shows a debit of $450 representing the cost of a three-year fire insurance policy dated September 1st. The adjusting entry on December 31st of the first year of insurance coverage is a debit to Insurance Expense and a credit to Prepaid Insurance for $100. ----- 4. An accrued liability results from a transaction in which a cash payment has been made but the expense has not been incurred. ----- 5. Wages paid in advance to an employee would be classified by the employer as an accrued expense. ----- 6. Using an accrual system, expenses for which cash expenditures have not yet been made are not reported as expenses on the income statement until the cash payment is made. ----- 7. The Income Summary account reveals that an operating loss of $800 has been incurred. Before closing entries are posted, the owner’s drawing account shows a balance of $460. The entry to close the Income Summary is a debit of $340 to the owner’s capital account and a credit of $340 to Income Summary [Show More]

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