ETS MAJOR FIELD TEST Business Actual
Exam QUESTIONS AND ANSWERS 2026 |
Bachelor's Degree Complete Q&A Graded A+ |
Pass Guaranteed - A+ Graded
Question 1
The fundamental accounting equation states that:
A. Assets + Liabilities = Owner's Equity
B. Assets = Liabilities + Owner's Equity [CORRECT]
C. Assets + Owner's Equity = Liabilities
D. Revenue - Expenses = Assets
Correct Answer: B
Rationale: The accounting equation (Assets = Liabilities + Owner's Equity) is the foundation of
double-entry bookkeeping. Assets are resources owned by the business. Liabilities are creditors'
claims (external obligations). Owner's equity represents the residual interest (owners' claims).
This equation must always balance after every transaction.
Option A: Incorrect—adding liabilities to assets doesn't equal equity; this reverses the proper
relationship.
Option C: Incorrect—assets and equity don't sum to liabilities; this misrepresents the equation.
Option D: Incorrect—this describes the income statement relationship (Revenue - Expenses =
Net Income), not the balance sheet equation.
Question 2
Which of the following accounts would be increased with a debit?
A. Accounts Payable
B. Unearned Revenue
C. Inventory [CORRECT]
D. Common Stock
,Correct Answer: C
Rationale: Inventory is an asset account. Assets increase with debits and decrease with credits.
The debit/credit rules are: Assets = Debit increase, Credit decrease; Liabilities = Credit increase,
Debit decrease; Equity = Credit increase, Debit decrease; Expenses = Debit increase; Revenues =
Credit increase.
Option A (Accounts Payable): Incorrect—this is a liability, increased with credits.
Option B (Unearned Revenue): Incorrect—this is a liability (obligation to provide
goods/services), increased with credits.
Option D (Common Stock): Incorrect—this is an equity account, increased with credits.
Question 3
A company purchased equipment for $50,000 cash. The effect on the accounting equation is:
A. Assets increase by $50,000; liabilities increase by $50,000
B. Assets decrease by $50,000; equity decreases by $50,000
C. No change in total assets [CORRECT]
D. Assets increase by $50,000; equity increases by $50,000
Correct Answer: C
Rationale: This transaction exchanges one asset (Cash) for another asset (Equipment). Cash
decreases $50,000; Equipment increases $50,000. Total assets remain unchanged. There is no
effect on liabilities or equity. This demonstrates that not all transactions change the total amount
of assets—some merely change the composition.
Option A: Incorrect—no liability was created; this would describe purchasing with a note
payable.
Option B: Incorrect—assets don't decrease; equity is unaffected.
Option D: Incorrect—assets don't increase; no revenue or equity transaction occurred.
Question 4
Under the accrual basis of accounting, revenue is recognized when:
A. Cash is received from customers
B. The performance obligation is satisfied (goods/services delivered) [CORRECT]
C. The invoice is mailed to the customer
D. The contract is signed
,Correct Answer: B
Rationale: Accrual accounting follows the revenue recognition principle: recognize revenue
when (or as) the entity satisfies a performance obligation by transferring a promised good or
service to a customer. This may occur before, when, or after cash is received. This matches
revenue to the period earned, regardless of cash timing.
Option A: Incorrect—this describes cash basis accounting, not accrual basis.
Option C: Incorrect—mailing an invoice is an administrative act, not the earnings process.
Option D: Incorrect—signing a contract creates performance obligations but doesn't satisfy them.
Question 5
A company has the following: Cash $25,000, Accounts Receivable $35,000, Inventory $40,000,
Equipment $100,000, Accumulated Depreciation $30,000, Accounts Payable $20,000, Notes
Payable $50,000. What is the amount of total assets?
A. $200,000
B. $170,000 [CORRECT]
C. $230,000
D. $170,000
Correct Answer: B
Rationale: Total assets = Current assets + Property, plant, and equipment (net). Calculation: Cash
$25,000 + Accounts Receivable $35,000 + Inventory $40,000 = Current assets $100,000.
Equipment $100,000 - Accumulated Depreciation $30,000 = Net equipment $70,000. Total assets
= $100,000 + $70,000 = $170,000. Liabilities are not subtracted to calculate total assets (that
would give net assets/equity).
Option A ($200,000): Incorrect—this adds gross equipment without subtracting accumulated
depreciation.
Option C ($230,000): Incorrect—this appears to add rather than subtract accumulated
depreciation.
Option D: Note—same as B, likely a typo in original options.
Question 6
Using FIFO (First-In, First-Out) during a period of rising prices results in:
A. Higher cost of goods sold and lower ending inventory than LIFO
B. Lower cost of goods sold and higher ending inventory than LIFO [CORRECT]
, C. The same cost of goods sold as LIFO
D. Higher cost of goods sold and higher ending inventory than LIFO
Correct Answer: B
Rationale: FIFO assumes oldest (lower-cost) inventory is sold first. During inflation: (1) Cost of
goods sold uses older, lower costs = lower COGS, (2) Ending inventory consists of newer,
higher-cost items = higher inventory value. LIFO produces opposite effects. FIFO matches
physical flow for perishables and shows current replacement cost in inventory.
Option A: Incorrect—this describes LIFO effects, not FIFO.
Option C: Incorrect—COGS differs between methods when prices change; only identical when
prices stable.
Option D: Incorrect—FIFO produces lower (not higher) COGS and higher ending inventory.
Question 7
A company purchased a machine for $100,000 with a 10-year useful life and $10,000 salvage
value. Using straight-line depreciation, annual depreciation expense is:
A. $10,000
B. $9,000 [CORRECT]
C. $11,000
D. $100,000
Correct Answer: B
Rationale: Straight-line depreciation = (Cost - Salvage Value) ÷ Useful Life = ($100,000 -
$10,000) ÷ 10 years = $90,000 ÷ 10 = $9,000 per year. Salvage value is subtracted because it's
not depreciated; the asset is expected to be worth $10,000 at disposal.
Option A ($10,000): Incorrect—this ignores salvage value ($100,000 ÷ 10).
Option C ($11,000): Incorrect—this appears to add salvage value or miscalculate.
Option D ($100,000): Incorrect—this is the total cost, not annual depreciation.
Question 8
Which financial statement reports revenues and expenses for a period of time?
A. Balance Sheet
B. Income Statement [CORRECT]
Exam QUESTIONS AND ANSWERS 2026 |
Bachelor's Degree Complete Q&A Graded A+ |
Pass Guaranteed - A+ Graded
Question 1
The fundamental accounting equation states that:
A. Assets + Liabilities = Owner's Equity
B. Assets = Liabilities + Owner's Equity [CORRECT]
C. Assets + Owner's Equity = Liabilities
D. Revenue - Expenses = Assets
Correct Answer: B
Rationale: The accounting equation (Assets = Liabilities + Owner's Equity) is the foundation of
double-entry bookkeeping. Assets are resources owned by the business. Liabilities are creditors'
claims (external obligations). Owner's equity represents the residual interest (owners' claims).
This equation must always balance after every transaction.
Option A: Incorrect—adding liabilities to assets doesn't equal equity; this reverses the proper
relationship.
Option C: Incorrect—assets and equity don't sum to liabilities; this misrepresents the equation.
Option D: Incorrect—this describes the income statement relationship (Revenue - Expenses =
Net Income), not the balance sheet equation.
Question 2
Which of the following accounts would be increased with a debit?
A. Accounts Payable
B. Unearned Revenue
C. Inventory [CORRECT]
D. Common Stock
,Correct Answer: C
Rationale: Inventory is an asset account. Assets increase with debits and decrease with credits.
The debit/credit rules are: Assets = Debit increase, Credit decrease; Liabilities = Credit increase,
Debit decrease; Equity = Credit increase, Debit decrease; Expenses = Debit increase; Revenues =
Credit increase.
Option A (Accounts Payable): Incorrect—this is a liability, increased with credits.
Option B (Unearned Revenue): Incorrect—this is a liability (obligation to provide
goods/services), increased with credits.
Option D (Common Stock): Incorrect—this is an equity account, increased with credits.
Question 3
A company purchased equipment for $50,000 cash. The effect on the accounting equation is:
A. Assets increase by $50,000; liabilities increase by $50,000
B. Assets decrease by $50,000; equity decreases by $50,000
C. No change in total assets [CORRECT]
D. Assets increase by $50,000; equity increases by $50,000
Correct Answer: C
Rationale: This transaction exchanges one asset (Cash) for another asset (Equipment). Cash
decreases $50,000; Equipment increases $50,000. Total assets remain unchanged. There is no
effect on liabilities or equity. This demonstrates that not all transactions change the total amount
of assets—some merely change the composition.
Option A: Incorrect—no liability was created; this would describe purchasing with a note
payable.
Option B: Incorrect—assets don't decrease; equity is unaffected.
Option D: Incorrect—assets don't increase; no revenue or equity transaction occurred.
Question 4
Under the accrual basis of accounting, revenue is recognized when:
A. Cash is received from customers
B. The performance obligation is satisfied (goods/services delivered) [CORRECT]
C. The invoice is mailed to the customer
D. The contract is signed
,Correct Answer: B
Rationale: Accrual accounting follows the revenue recognition principle: recognize revenue
when (or as) the entity satisfies a performance obligation by transferring a promised good or
service to a customer. This may occur before, when, or after cash is received. This matches
revenue to the period earned, regardless of cash timing.
Option A: Incorrect—this describes cash basis accounting, not accrual basis.
Option C: Incorrect—mailing an invoice is an administrative act, not the earnings process.
Option D: Incorrect—signing a contract creates performance obligations but doesn't satisfy them.
Question 5
A company has the following: Cash $25,000, Accounts Receivable $35,000, Inventory $40,000,
Equipment $100,000, Accumulated Depreciation $30,000, Accounts Payable $20,000, Notes
Payable $50,000. What is the amount of total assets?
A. $200,000
B. $170,000 [CORRECT]
C. $230,000
D. $170,000
Correct Answer: B
Rationale: Total assets = Current assets + Property, plant, and equipment (net). Calculation: Cash
$25,000 + Accounts Receivable $35,000 + Inventory $40,000 = Current assets $100,000.
Equipment $100,000 - Accumulated Depreciation $30,000 = Net equipment $70,000. Total assets
= $100,000 + $70,000 = $170,000. Liabilities are not subtracted to calculate total assets (that
would give net assets/equity).
Option A ($200,000): Incorrect—this adds gross equipment without subtracting accumulated
depreciation.
Option C ($230,000): Incorrect—this appears to add rather than subtract accumulated
depreciation.
Option D: Note—same as B, likely a typo in original options.
Question 6
Using FIFO (First-In, First-Out) during a period of rising prices results in:
A. Higher cost of goods sold and lower ending inventory than LIFO
B. Lower cost of goods sold and higher ending inventory than LIFO [CORRECT]
, C. The same cost of goods sold as LIFO
D. Higher cost of goods sold and higher ending inventory than LIFO
Correct Answer: B
Rationale: FIFO assumes oldest (lower-cost) inventory is sold first. During inflation: (1) Cost of
goods sold uses older, lower costs = lower COGS, (2) Ending inventory consists of newer,
higher-cost items = higher inventory value. LIFO produces opposite effects. FIFO matches
physical flow for perishables and shows current replacement cost in inventory.
Option A: Incorrect—this describes LIFO effects, not FIFO.
Option C: Incorrect—COGS differs between methods when prices change; only identical when
prices stable.
Option D: Incorrect—FIFO produces lower (not higher) COGS and higher ending inventory.
Question 7
A company purchased a machine for $100,000 with a 10-year useful life and $10,000 salvage
value. Using straight-line depreciation, annual depreciation expense is:
A. $10,000
B. $9,000 [CORRECT]
C. $11,000
D. $100,000
Correct Answer: B
Rationale: Straight-line depreciation = (Cost - Salvage Value) ÷ Useful Life = ($100,000 -
$10,000) ÷ 10 years = $90,000 ÷ 10 = $9,000 per year. Salvage value is subtracted because it's
not depreciated; the asset is expected to be worth $10,000 at disposal.
Option A ($10,000): Incorrect—this ignores salvage value ($100,000 ÷ 10).
Option C ($11,000): Incorrect—this appears to add salvage value or miscalculate.
Option D ($100,000): Incorrect—this is the total cost, not annual depreciation.
Question 8
Which financial statement reports revenues and expenses for a period of time?
A. Balance Sheet
B. Income Statement [CORRECT]
