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Thread: FREE CFA Level 1 sample questions everyday for December 2010 candidates

  1. #121
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    Quote Originally Posted by vivek2812 View Post
    but the question is asking which is the least likely. That means which is the option we could disregard when it comes to define a firm's asset. Option A do not support the accounting equation. I think then I will stick to my answer A as the correct option.
    Even I overlooked the "least likely" part. It's good that Vivek pointed it out.

  2. #122
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    From now on i will read the question twice.. Well spoted Vivek

  3. #123
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    Q#24 Answer: (A)
    Assets = Liabilities + Owners’ equity. Option A does not conform to the accounting equation.

    ================================================== =====================================
    Today's question (Questions and answers provided by Elan Guides)

    Q25. To balance the accounting equation, an increase in a firm’s liabilities is least likely to be accompanied by:

    A. An increase in its assets only
    B. An increase in its owners’ equity only
    C. A decrease in its owners’ equity only
    ================================================== =====================================

  4. #124
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    The answer should be B

  5. #125
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    Quote Originally Posted by Cachia85 View Post
    The answer should be B
    Can u pls explain the logic?

  6. #126
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    Ans is B. If the liability increases there are two ways to balance the equation:
    1) Decrease the owners equity only by the same amount to keep the equation intact. Option C supports this view OR
    2) Dont increase the owners equity and then the asset will be increased by the net increase in the liability. Option A supports this view.

    Mind it friends it is again asking for least likely answer which is only B.

    Please advise if my understanding is incorrect.

    Vivek

  7. #127
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    Quote Originally Posted by vivek2812 View Post
    Ans is B. If the liability increases there are two ways to balance the equation:
    1) Decrease the owners equity only by the same amount to keep the equation intact. Option C supports this view OR
    2) Dont increase the owners equity and then the asset will be increased by the net increase in the liability. Option A supports this view.

    Mind it friends it is again asking for least likely answer which is only B.

    Please advise if my understanding is incorrect.

    Vivek

    This sounds correct!

  8. #128
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    Quote Originally Posted by vivek2812 View Post
    Ans is B. If the liability increases there are two ways to balance the equation:
    1) Decrease the owners equity only by the same amount to keep the equation intact. Option C supports this view OR
    2) Dont increase the owners equity and then the asset will be increased by the net increase in the liability. Option A supports this view.

    Mind it friends it is again asking for least likely answer which is only B.

    Please advise if my understanding is incorrect.

    Vivek
    This is very correct indeed, Thank you.

  9. #129
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    My Answer is Least likely B
    Asset = Equity + Liability

    An increase in L will result in an increase in a ...
    Answer is least likely increase in Equity i go for B

  10. #130
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    Q#25 Answer: (B)
    An increase in a firm

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