HBS CORE FINAL EXAM PREP EXAM QUESTIONS AND
ANSWERS
Wanting to raise more capital for the business, Suslik Designs decided to allow 2 new equity investors
into the business. Each new investor paid $10,000. How will their investment impact the accounting
equation? Select all that apply. - CORRECT ANSWER✅✅The assets of the business are increased by the
amount of cash received ($10,000 from each investor), and because the source of those resources is the
new owners, owners' equity is also increased.
Which of the following is an example of owners' equity? Select all that apply. - CORRECT
ANSWER✅✅Net income for the first four months of the fiscal year.
All revenues and expenses, and therefore Net Income, are part of the owners' equity of the business.
Which of the following is an example of an expense? Select all that apply. - CORRECT ANSWER✅✅The
cost of a home store's inventory of glassware that is thrown away because they were broken. This is an
expense related to the ongoing operations of a home store.
Fuel used for a company's delivery trucks last month. This is an expense related to an ongoing activity of
the business.
A cold-weather clothing store has always had a generous return policy on all jackets and coats. Jackets
can be returned for a full refund up to a year from the date of purchase. Historical data has shown that
8% of customers will return their jackets and the company maintains a reserve for returns to account for
this. The CEO is looking for ways to boost its bottom line and would like to get rid of this reserve in the
current year.
The most important accounting principle to consider in this case is: - CORRECT
ANSWER✅✅Consistency.
The principle of Consistency requires that the accounting methods be consistently applied by the
company over time in recording and reporting unless there is a sound reason to change them.
Since it sounds like the motivation is related to increasing net income and is not to utilize a more
accurate accounting, the company should probably choose to stay consistent with the accounting
practices they have been using.
,Mandini's Steakhouse purchased 100 T-bone steaks for a total of $1,000 from a supplier. The restaurant
bought the steaks on credit, and they will not pay until 30 days after delivery.
First, how will the accounting equation be affected at the time of the purchase? Select all that apply.
Suppose 30 days after the purchase, Mandini's paid cash to the vendor. How will the accounting
equation be affected when the payment is made? - CORRECT ANSWER✅✅First step: Assets and
Liabilities increase.
Second step: Assets and Liabilities decrease.
At the time of the purchase, inventory is an asset, so assets increase by $1,000. The obligation to pay
within 30 days is a liability, so liabilities increase by $1,000.
30 days later, at the time of the payment, cash is an asset, so the payment in cash decreases assets by
$1,000. The obligation to pay was a liability, so the payment in cash decreases liabilities by $1,000.
Which of the following is an example of an asset? Select all that apply. - CORRECT ANSWER✅✅A
customer's promise to pay for a new computer delivered last month.
The promise represents future cash inflow and the delivery of the computer occurred in the past.
Gold Zone Inc., a jewelry designer and manufacturer, sold watches to Jill's Jewelry Shop for $1,500. Gold
Zone spent $800 manufacturing the watches and Jill's Jewelry Shop has 30 days to pay for this order
after they receive it.
First, how will the recognition of the receivable and revenue for the transaction impact the accounting
equation at the time of the sale? Please enter the amounts in the boxes below.
Next, Gold Zone needs to show that the inventory was sold and recognize an expense for the cost of
goods sold for $800. How will such a recognition impact the accounting equation?
,Lastly, Gold Zone received payment from Jill's Jewelry Shop 30 days after the initial purchase.How would
the accounting equation be impacted when the payment is received? - CORRECT ANSWER✅✅First, the
sale increases assets (accounts receivable) by $1,500. The sale also increases revenue, which increases
owners' equity by $1,500.
At the same time, the sale decreases assets (inventory) by $800. The cost of goods sold is an expense, so
it decreases owners' equity by $800.
Finally, the receipt of payment increases assets (cash) by $1,500. The receipt of payment also decreases
assets (accounts receivable) by $1,500.
Which of the following is an example of a revenue? Select all that apply. - CORRECT
ANSWER✅✅Gopher Co. is a designer and manufacturer of promotional clothing and accessories.
Gopher delivered T-shirts to a customer and sent an invoice to the customer for $2,000. The revenue
has been earned because the goods were delivered.
Lauren owns a coffee shop. A customer came to the shop and purchased a cappuccino and a bag of
coffee beans. The customer paid $40 at the time of purchase. The revenue has been both earned
(because the cappuccino and a bag of coffee beans were provided) and realized (because the cash was
received).
Glodar Corp., an oil rig parts manufacturer, received an advance payment of $150,000 on Aug 1 for an
order of a replacement drill bit for an oil rig. Glodar Corp. delivered the drill bit on Nov 1. How will the
accounting equation be impacted when this advance payment was recorded on Aug 1? Select all that
apply. - CORRECT ANSWER✅✅Cash, an asset, increases by $150,000. Because Glodar Corp. has not
earned the $150,000 and they are obligated to deliver the drill bit, liabilities are increased.
Many companies keep a small amount of cash on hand to reimburse employees for small expenses that
arise in the course of business. This account is called Petty Cash and is accounted for at the end of a
period, with expenses grouped together by accounts such as Office Supplies, Meals, Travel, and Other
Expenses, rather than record each individual expense that is reimbursed.
The reasoning behind recording the transactions in this manner relates to which of the following
accounting principles? - CORRECT ANSWER✅✅Materiality. The decision about the level of detail in
, grouping transactions into financial accounts is related to how significant, or material, the transactions
are.
Companies may include a footnote in their financial statements regarding key market and industry risks
that affect their business because users of the financial statements would likely consider such
information to be: - CORRECT ANSWER✅✅Relevant. Information that may affect a reasonable user's
decision-making is considered relevant.
Which of the following is an example of a liability? Select all that apply. - CORRECT ANSWER✅✅Short-
term loan from a bank to purchase needed equipment.
The loan is an obligation to pay back the bank based on a transaction that has already occurred, so this
is a liability.
NOTES RECEIVABLE increases with a: - CORRECT ANSWER✅✅Debit. Assets increase with a debit.
Select the accounts that will be impacted by the transaction described below and drag them to the
correct section of the accounting equation. Once the T-account appears, choose the date from the drop-
down menu, and enter the appropriate amount as debit or credit.
You must choose a date and enter an amount on each T-account line shown in order to submit the
exercise. If the Next Step or Submit button is not enabled, make sure you have selected a date for each
line in the T-accounts, and make sure there is an amount in the debit or credit column for each line. If
there are any unused T-accounts in the accounting equation bucket area, make sure they are dragged
back up to the Accounts bucket.
SALE on 1/1/2015
Gill Fishing, a company that provides fishing expeditions for tourists at 8 locations across the globe, sold
15 tickets for expeditions at its various locations on January 1, 2015 for a total of $15,000 ($1,000 -
CORRECT ANSWER✅✅On January 1, 2015, when the tickets were sold, the Cash account (an asset)
should be debited to show the amount received ($15,000) and, since the revenue has not been earned
and Gill Fishing is obligated to provide the expeditions, the Deferred Revenue account (a liability) should
be increased (credited) by the amount of funds received ($15,000).
ANSWERS
Wanting to raise more capital for the business, Suslik Designs decided to allow 2 new equity investors
into the business. Each new investor paid $10,000. How will their investment impact the accounting
equation? Select all that apply. - CORRECT ANSWER✅✅The assets of the business are increased by the
amount of cash received ($10,000 from each investor), and because the source of those resources is the
new owners, owners' equity is also increased.
Which of the following is an example of owners' equity? Select all that apply. - CORRECT
ANSWER✅✅Net income for the first four months of the fiscal year.
All revenues and expenses, and therefore Net Income, are part of the owners' equity of the business.
Which of the following is an example of an expense? Select all that apply. - CORRECT ANSWER✅✅The
cost of a home store's inventory of glassware that is thrown away because they were broken. This is an
expense related to the ongoing operations of a home store.
Fuel used for a company's delivery trucks last month. This is an expense related to an ongoing activity of
the business.
A cold-weather clothing store has always had a generous return policy on all jackets and coats. Jackets
can be returned for a full refund up to a year from the date of purchase. Historical data has shown that
8% of customers will return their jackets and the company maintains a reserve for returns to account for
this. The CEO is looking for ways to boost its bottom line and would like to get rid of this reserve in the
current year.
The most important accounting principle to consider in this case is: - CORRECT
ANSWER✅✅Consistency.
The principle of Consistency requires that the accounting methods be consistently applied by the
company over time in recording and reporting unless there is a sound reason to change them.
Since it sounds like the motivation is related to increasing net income and is not to utilize a more
accurate accounting, the company should probably choose to stay consistent with the accounting
practices they have been using.
,Mandini's Steakhouse purchased 100 T-bone steaks for a total of $1,000 from a supplier. The restaurant
bought the steaks on credit, and they will not pay until 30 days after delivery.
First, how will the accounting equation be affected at the time of the purchase? Select all that apply.
Suppose 30 days after the purchase, Mandini's paid cash to the vendor. How will the accounting
equation be affected when the payment is made? - CORRECT ANSWER✅✅First step: Assets and
Liabilities increase.
Second step: Assets and Liabilities decrease.
At the time of the purchase, inventory is an asset, so assets increase by $1,000. The obligation to pay
within 30 days is a liability, so liabilities increase by $1,000.
30 days later, at the time of the payment, cash is an asset, so the payment in cash decreases assets by
$1,000. The obligation to pay was a liability, so the payment in cash decreases liabilities by $1,000.
Which of the following is an example of an asset? Select all that apply. - CORRECT ANSWER✅✅A
customer's promise to pay for a new computer delivered last month.
The promise represents future cash inflow and the delivery of the computer occurred in the past.
Gold Zone Inc., a jewelry designer and manufacturer, sold watches to Jill's Jewelry Shop for $1,500. Gold
Zone spent $800 manufacturing the watches and Jill's Jewelry Shop has 30 days to pay for this order
after they receive it.
First, how will the recognition of the receivable and revenue for the transaction impact the accounting
equation at the time of the sale? Please enter the amounts in the boxes below.
Next, Gold Zone needs to show that the inventory was sold and recognize an expense for the cost of
goods sold for $800. How will such a recognition impact the accounting equation?
,Lastly, Gold Zone received payment from Jill's Jewelry Shop 30 days after the initial purchase.How would
the accounting equation be impacted when the payment is received? - CORRECT ANSWER✅✅First, the
sale increases assets (accounts receivable) by $1,500. The sale also increases revenue, which increases
owners' equity by $1,500.
At the same time, the sale decreases assets (inventory) by $800. The cost of goods sold is an expense, so
it decreases owners' equity by $800.
Finally, the receipt of payment increases assets (cash) by $1,500. The receipt of payment also decreases
assets (accounts receivable) by $1,500.
Which of the following is an example of a revenue? Select all that apply. - CORRECT
ANSWER✅✅Gopher Co. is a designer and manufacturer of promotional clothing and accessories.
Gopher delivered T-shirts to a customer and sent an invoice to the customer for $2,000. The revenue
has been earned because the goods were delivered.
Lauren owns a coffee shop. A customer came to the shop and purchased a cappuccino and a bag of
coffee beans. The customer paid $40 at the time of purchase. The revenue has been both earned
(because the cappuccino and a bag of coffee beans were provided) and realized (because the cash was
received).
Glodar Corp., an oil rig parts manufacturer, received an advance payment of $150,000 on Aug 1 for an
order of a replacement drill bit for an oil rig. Glodar Corp. delivered the drill bit on Nov 1. How will the
accounting equation be impacted when this advance payment was recorded on Aug 1? Select all that
apply. - CORRECT ANSWER✅✅Cash, an asset, increases by $150,000. Because Glodar Corp. has not
earned the $150,000 and they are obligated to deliver the drill bit, liabilities are increased.
Many companies keep a small amount of cash on hand to reimburse employees for small expenses that
arise in the course of business. This account is called Petty Cash and is accounted for at the end of a
period, with expenses grouped together by accounts such as Office Supplies, Meals, Travel, and Other
Expenses, rather than record each individual expense that is reimbursed.
The reasoning behind recording the transactions in this manner relates to which of the following
accounting principles? - CORRECT ANSWER✅✅Materiality. The decision about the level of detail in
, grouping transactions into financial accounts is related to how significant, or material, the transactions
are.
Companies may include a footnote in their financial statements regarding key market and industry risks
that affect their business because users of the financial statements would likely consider such
information to be: - CORRECT ANSWER✅✅Relevant. Information that may affect a reasonable user's
decision-making is considered relevant.
Which of the following is an example of a liability? Select all that apply. - CORRECT ANSWER✅✅Short-
term loan from a bank to purchase needed equipment.
The loan is an obligation to pay back the bank based on a transaction that has already occurred, so this
is a liability.
NOTES RECEIVABLE increases with a: - CORRECT ANSWER✅✅Debit. Assets increase with a debit.
Select the accounts that will be impacted by the transaction described below and drag them to the
correct section of the accounting equation. Once the T-account appears, choose the date from the drop-
down menu, and enter the appropriate amount as debit or credit.
You must choose a date and enter an amount on each T-account line shown in order to submit the
exercise. If the Next Step or Submit button is not enabled, make sure you have selected a date for each
line in the T-accounts, and make sure there is an amount in the debit or credit column for each line. If
there are any unused T-accounts in the accounting equation bucket area, make sure they are dragged
back up to the Accounts bucket.
SALE on 1/1/2015
Gill Fishing, a company that provides fishing expeditions for tourists at 8 locations across the globe, sold
15 tickets for expeditions at its various locations on January 1, 2015 for a total of $15,000 ($1,000 -
CORRECT ANSWER✅✅On January 1, 2015, when the tickets were sold, the Cash account (an asset)
should be debited to show the amount received ($15,000) and, since the revenue has not been earned
and Gill Fishing is obligated to provide the expeditions, the Deferred Revenue account (a liability) should
be increased (credited) by the amount of funds received ($15,000).
