HBS Core Final Exam Prep
1. 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.: 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.
2. 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 owners' equity?
Select all that apply.
3. The cost of a home store's inventory of glassware that is thrown away be-
cause 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.: Which of the following is an
example of an expense? Select all that apply.
4. Consistency.
The principle of Consistency requires that the accounting methods be con-
sistently 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.: 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:
5. 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.
, HBS Core Final Exam Prep
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.: 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?
6. 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.: Which of the following is an example of an asset? Select all
that apply.
7. 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.: 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?
, HBS Core Final Exam Prep
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?
8. 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).: Which of the following is an example of a revenue? Select all that apply.
9. 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 in-
creased.: 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.
10. Materiality. The decision about the level of detail in grouping transactions
into financial accounts is related to how significant, or material, the transac-
tions are.: 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?
11. Relevant. Information that may affect a reasonable user's decision-making
is considered relevant.: Companies may include a footnote in their financial state-
ments regarding key market and industry risks that affect their business because
users of the financial statements would likely consider such information to be:
12. 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.: Which of the following is an example of a
liability? Select all that apply.
13. Debit. Assets increase with a debit.: NOTES RECEIVABLE increases with a:
, HBS Core Final Exam Prep
14. 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).
On July 31, 2015, Gill Fishing has earned the revenue from eight of the tickets
sold and reduced their obligation by the same amount so they should reduce
(debit) the Deferred Revenue account (a liability) for $8,000 and increase
(credit) the Revenue account (part of owners' equity) for $8,000, representing
eight of the fifteen expeditions completed.: 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 per customer). The customers will go on
the expeditions during the fishing months from May - September 2015. All of the
customers paid in cash at the time of the purchase.
What impact would the receipt of cash have on this date?
SERVICES PROVIDED by 7/31/15
By July 31, 201
15. Cash is an asset account and it is decreased by credits (on the right in
T-accounts).
Utility Expense is an expense account and it is increased by debits (on the left
1. 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.: 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.
2. 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 owners' equity?
Select all that apply.
3. The cost of a home store's inventory of glassware that is thrown away be-
cause 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.: Which of the following is an
example of an expense? Select all that apply.
4. Consistency.
The principle of Consistency requires that the accounting methods be con-
sistently 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.: 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:
5. 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.
, HBS Core Final Exam Prep
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.: 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?
6. 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.: Which of the following is an example of an asset? Select all
that apply.
7. 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.: 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?
, HBS Core Final Exam Prep
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?
8. 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).: Which of the following is an example of a revenue? Select all that apply.
9. 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 in-
creased.: 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.
10. Materiality. The decision about the level of detail in grouping transactions
into financial accounts is related to how significant, or material, the transac-
tions are.: 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?
11. Relevant. Information that may affect a reasonable user's decision-making
is considered relevant.: Companies may include a footnote in their financial state-
ments regarding key market and industry risks that affect their business because
users of the financial statements would likely consider such information to be:
12. 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.: Which of the following is an example of a
liability? Select all that apply.
13. Debit. Assets increase with a debit.: NOTES RECEIVABLE increases with a:
, HBS Core Final Exam Prep
14. 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).
On July 31, 2015, Gill Fishing has earned the revenue from eight of the tickets
sold and reduced their obligation by the same amount so they should reduce
(debit) the Deferred Revenue account (a liability) for $8,000 and increase
(credit) the Revenue account (part of owners' equity) for $8,000, representing
eight of the fifteen expeditions completed.: 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 per customer). The customers will go on
the expeditions during the fishing months from May - September 2015. All of the
customers paid in cash at the time of the purchase.
What impact would the receipt of cash have on this date?
SERVICES PROVIDED by 7/31/15
By July 31, 201
15. Cash is an asset account and it is decreased by credits (on the right in
T-accounts).
Utility Expense is an expense account and it is increased by debits (on the left
