FINANCE PRACTICE EXAM - HBS
CORE QUESTIONS AND ANSWERS
100% ACCURATE
US GAAP: Put either into financing, operating, or investing activities:
Purchase of a building for cash $300,000
Sale of used plant equipment for cash $10,000
Sale of inventory for cash $18,000
Payment of wages to employees $25,000
Purchase of inventory for cash $10,000
Sale of land for cash $140,000
Repayment of a bank loan (principal) $15,000
Payment of utilities $5,000 - ANSWER-Operating:
Sale of inventory for cash (SOURCE)
Payment of wages to employees (USE)
Purchase of inventory for cash (USE)
Payment of Utilities (USE)
Financing:
Repayment of a bank loan (USE)
Purchase of a building for cash (USE)
Sale of land for cash (SOURCE)
Sale of used plant equipment for cash (SOURCE)
Investing:
Nothing?
As of Dec. 31, 2013, a company had current assets of $600,000 and current
liabilities of $300,000. Sales of the company are expected to increase by 10 percent
for each of the next two years. If all current assets and current liability accounts
increase proportionately with sales, what would be the projected current ratio of the
company on Dec. 31, 2015?
1.65
2.00
2.20
2.40 - ANSWER-2.00
Current Assets/Current Liabilities = Answer
A project has an initial cost of $18,000. The estimated net cash flows of the project
are as follows:
Year 1: $4000
Year 2: $4000
, Year 3: $6000
Year 4: $8000
Year 5: $8000
What's the payback period?
3.0 Years
3.5 Years
3.75 Years
4.0 Years - ANSWER-3.5 Years
In between years 3 and 4 will the total amount put in "even out" the amount gained
back (net zero).
Owner's equity and sales, respectively - ANSWER-Total assets and sales,
respectively
In which stages would you typically expect to see large negative Investment Cash
Flows? Select all that apply.
Startup
Profitable/Growing
Mature/Steady
Decline - ANSWER-Startup
Profitable/growing
A company's retained earnings on Dec. 31st, 2009 to 2013 is as follows:
2009: $15000
2010: $18000
2011: $16000
2012: $21000
2013: $25000
On the Pro-forma income statement for 2014, the net income is $10,000. The
expected dividends to be paid in 2014 is $3,500. What is the projected retained
earnings on Dec. 31st, 2014?
$15,000
$18,500
$31,500
$35,000 - ANSWER-$31500
Add the net income ($10,000) to the 2013 total ($25,000) for a total of $35,000.
Subtract the dividends to be paid ($3500). You end up with $31500.
A company purchased a piece of equipment for $150,000 on July 1, 2015. The
estimated useful life is 10 years with a salvage value of $12,000 at the end of the 10
year period. The company uses the straight-line depreciation method. What would
the journal entry to record depreciation expense for the month of September 2015?
CORE QUESTIONS AND ANSWERS
100% ACCURATE
US GAAP: Put either into financing, operating, or investing activities:
Purchase of a building for cash $300,000
Sale of used plant equipment for cash $10,000
Sale of inventory for cash $18,000
Payment of wages to employees $25,000
Purchase of inventory for cash $10,000
Sale of land for cash $140,000
Repayment of a bank loan (principal) $15,000
Payment of utilities $5,000 - ANSWER-Operating:
Sale of inventory for cash (SOURCE)
Payment of wages to employees (USE)
Purchase of inventory for cash (USE)
Payment of Utilities (USE)
Financing:
Repayment of a bank loan (USE)
Purchase of a building for cash (USE)
Sale of land for cash (SOURCE)
Sale of used plant equipment for cash (SOURCE)
Investing:
Nothing?
As of Dec. 31, 2013, a company had current assets of $600,000 and current
liabilities of $300,000. Sales of the company are expected to increase by 10 percent
for each of the next two years. If all current assets and current liability accounts
increase proportionately with sales, what would be the projected current ratio of the
company on Dec. 31, 2015?
1.65
2.00
2.20
2.40 - ANSWER-2.00
Current Assets/Current Liabilities = Answer
A project has an initial cost of $18,000. The estimated net cash flows of the project
are as follows:
Year 1: $4000
Year 2: $4000
, Year 3: $6000
Year 4: $8000
Year 5: $8000
What's the payback period?
3.0 Years
3.5 Years
3.75 Years
4.0 Years - ANSWER-3.5 Years
In between years 3 and 4 will the total amount put in "even out" the amount gained
back (net zero).
Owner's equity and sales, respectively - ANSWER-Total assets and sales,
respectively
In which stages would you typically expect to see large negative Investment Cash
Flows? Select all that apply.
Startup
Profitable/Growing
Mature/Steady
Decline - ANSWER-Startup
Profitable/growing
A company's retained earnings on Dec. 31st, 2009 to 2013 is as follows:
2009: $15000
2010: $18000
2011: $16000
2012: $21000
2013: $25000
On the Pro-forma income statement for 2014, the net income is $10,000. The
expected dividends to be paid in 2014 is $3,500. What is the projected retained
earnings on Dec. 31st, 2014?
$15,000
$18,500
$31,500
$35,000 - ANSWER-$31500
Add the net income ($10,000) to the 2013 total ($25,000) for a total of $35,000.
Subtract the dividends to be paid ($3500). You end up with $31500.
A company purchased a piece of equipment for $150,000 on July 1, 2015. The
estimated useful life is 10 years with a salvage value of $12,000 at the end of the 10
year period. The company uses the straight-line depreciation method. What would
the journal entry to record depreciation expense for the month of September 2015?
