HBS CORE - FINACC MOD1 QUIZ
WITH COMPLETE SOLUTIONS
Address You, a fancy dress manufacturer, sold a dress for $8,000 on credit. The
cost of producing this dress was $1,000.
First, how would the revenue and receivable from this transaction impact the
accounting equation of Address You?
At the same time, how will the related expense from this transaction impact the
accounting equation of Address You? - ANSWER-First, assets increase by $8,000
because the company now has a receivable, or right to receive cash, and owners'
equity increases by $8,000 to recognize the revenue gained from the sale.
At the same time, assets decrease by $1,000 because the company no longer has
the inventory, and owners' equity decreases by $1,000 to recognize the expense
associated with the sale.
We Like to Rock (WLR), a granite countertop manufacturer, delivered 5 countertops
at $2,000 each to their client. The cost of producing the countertops was $500 each.
The client paid cash for the countertops.
First, how would the revenue from this transaction impact the accounting equation
for WLR?
At the same time, how will the related expense from this transaction impact the
accounting equation of WLR?
answers. - ANSWER-First, assets increase by $10,000 (5 countertops at $2,000
each) as the company now has a receivable, or right to receive cash, and owners'
equity increases by $10,000 to recognize the revenue associated with the sale.
At the same time, assets decrease by $2,500 (5 countertops at $500 each) as the
company no longer has the inventory, and owners' equity decreases by $2,500 to
recognize the expense associated with the sale.
Jarvard University Bookstore paid $67,000 for books purchased on credit in the
previous month. How would this payment impact the accounting equation? -
ANSWER-Assets decrease by $67,000 as cash is paid, and liabilities decrease by
$67,000 as Jarvard no longer has the obligation to pay for the books.
Which of the following demonstrates the historical cost principle?
(A) John is wondering which method of accounting for inventory in his bike shop
would be most appropriate. He decides that he should use the same method that he
has been using for the last few years, since his business has been operating
essentially the same way.
(B) Real Estate prices in Orderville have increased dramatically over the last five
years. Although the land under Chad's office building is currently believed to be
worth $500,000, it is recorded at $250,000 because that is the price he paid for it.
(C) Shelley's Automotive received a large order from a customer, who prepaid the
entire amount. Shelley recorded the prepayment as revenue at the time she received
, the cash. Shelley delivered the parts 30 days after the payment was received. -
ANSWER-ANSWER: (B) Real Estate prices in Orderville have increased
dramatically over the last five years. Although the land under Chad's office building is
currently believed to be worth $500,000, it is recorded at $250,000 because that is
the price he paid for it.
The idea that assets are recorded at their original cost underlies the historical cost
principle, so the land under Chad's office being recorded at the price he paid for it is
an example of the historical cost principle.
INCORRECT:
(A) John is wondering which method of accounting for inventory in his bike shop
would be most appropriate. He decides that he should use the same method that he
has been using for the last few years, since his business has been operating
essentially the same way.
This is an example of consistency, not historical cost.
(C) Shelley's Automotive received a large order from a customer, who prepaid the
entire amount. Shelley recorded the prepayment as revenue at the time she received
the cash. Shelley delivered the parts 30 days after the payment was received.
This is an example of the cash method of accounting, not historical cost.
Below are some of the accounts that Company F has on their books. What is the
correct total of liabilities? $2,450, $800, $1,650, or $2,700
Cash and Cash Equivalents $2,000
Insurance Expense $250
Accounts Payable $800
Prepaid Rent $400
Accounts Receivable $750
Deferred Revenue $1,650
Inventory $925 - ANSWER-The correct answer is $2,450 in liabilities, which includes:
Accounts Payable $800
Deferred Revenue $1,650
Breeze Inc. receives payment of $800,000 for 4 wind turbines that were delivered
and invoiced on credit in the previous month. How would this receipt impact the
accounting equation of Breeze Inc.? - ANSWER-Assets increase by $800,000
because the company receives cash, and assets also decrease by $800,000
because the company no longer has a right to receive the cash (the receivable
previously recorded at the time of the sale).
Below are some of the accounts that Company F has on their books. What is the
correct total of assets? $2,400, $3,675, $4,075, or $3,325
Cash and Cash Equivalents $2,000
Insurance Expense $250
Accounts Payable $800
Prepaid Rent $400
Accounts Receivable $750
Deferred Revenue $1,650
Inventory $925 - ANSWER-The correct answer is $4,075 in assets, which includes:
WITH COMPLETE SOLUTIONS
Address You, a fancy dress manufacturer, sold a dress for $8,000 on credit. The
cost of producing this dress was $1,000.
First, how would the revenue and receivable from this transaction impact the
accounting equation of Address You?
At the same time, how will the related expense from this transaction impact the
accounting equation of Address You? - ANSWER-First, assets increase by $8,000
because the company now has a receivable, or right to receive cash, and owners'
equity increases by $8,000 to recognize the revenue gained from the sale.
At the same time, assets decrease by $1,000 because the company no longer has
the inventory, and owners' equity decreases by $1,000 to recognize the expense
associated with the sale.
We Like to Rock (WLR), a granite countertop manufacturer, delivered 5 countertops
at $2,000 each to their client. The cost of producing the countertops was $500 each.
The client paid cash for the countertops.
First, how would the revenue from this transaction impact the accounting equation
for WLR?
At the same time, how will the related expense from this transaction impact the
accounting equation of WLR?
answers. - ANSWER-First, assets increase by $10,000 (5 countertops at $2,000
each) as the company now has a receivable, or right to receive cash, and owners'
equity increases by $10,000 to recognize the revenue associated with the sale.
At the same time, assets decrease by $2,500 (5 countertops at $500 each) as the
company no longer has the inventory, and owners' equity decreases by $2,500 to
recognize the expense associated with the sale.
Jarvard University Bookstore paid $67,000 for books purchased on credit in the
previous month. How would this payment impact the accounting equation? -
ANSWER-Assets decrease by $67,000 as cash is paid, and liabilities decrease by
$67,000 as Jarvard no longer has the obligation to pay for the books.
Which of the following demonstrates the historical cost principle?
(A) John is wondering which method of accounting for inventory in his bike shop
would be most appropriate. He decides that he should use the same method that he
has been using for the last few years, since his business has been operating
essentially the same way.
(B) Real Estate prices in Orderville have increased dramatically over the last five
years. Although the land under Chad's office building is currently believed to be
worth $500,000, it is recorded at $250,000 because that is the price he paid for it.
(C) Shelley's Automotive received a large order from a customer, who prepaid the
entire amount. Shelley recorded the prepayment as revenue at the time she received
, the cash. Shelley delivered the parts 30 days after the payment was received. -
ANSWER-ANSWER: (B) Real Estate prices in Orderville have increased
dramatically over the last five years. Although the land under Chad's office building is
currently believed to be worth $500,000, it is recorded at $250,000 because that is
the price he paid for it.
The idea that assets are recorded at their original cost underlies the historical cost
principle, so the land under Chad's office being recorded at the price he paid for it is
an example of the historical cost principle.
INCORRECT:
(A) John is wondering which method of accounting for inventory in his bike shop
would be most appropriate. He decides that he should use the same method that he
has been using for the last few years, since his business has been operating
essentially the same way.
This is an example of consistency, not historical cost.
(C) Shelley's Automotive received a large order from a customer, who prepaid the
entire amount. Shelley recorded the prepayment as revenue at the time she received
the cash. Shelley delivered the parts 30 days after the payment was received.
This is an example of the cash method of accounting, not historical cost.
Below are some of the accounts that Company F has on their books. What is the
correct total of liabilities? $2,450, $800, $1,650, or $2,700
Cash and Cash Equivalents $2,000
Insurance Expense $250
Accounts Payable $800
Prepaid Rent $400
Accounts Receivable $750
Deferred Revenue $1,650
Inventory $925 - ANSWER-The correct answer is $2,450 in liabilities, which includes:
Accounts Payable $800
Deferred Revenue $1,650
Breeze Inc. receives payment of $800,000 for 4 wind turbines that were delivered
and invoiced on credit in the previous month. How would this receipt impact the
accounting equation of Breeze Inc.? - ANSWER-Assets increase by $800,000
because the company receives cash, and assets also decrease by $800,000
because the company no longer has a right to receive the cash (the receivable
previously recorded at the time of the sale).
Below are some of the accounts that Company F has on their books. What is the
correct total of assets? $2,400, $3,675, $4,075, or $3,325
Cash and Cash Equivalents $2,000
Insurance Expense $250
Accounts Payable $800
Prepaid Rent $400
Accounts Receivable $750
Deferred Revenue $1,650
Inventory $925 - ANSWER-The correct answer is $4,075 in assets, which includes:
