HBS CORE - FINACC MOD1 EXAM
QUESTIONS AND ANSWERS. VERIFIED
2025/2026.
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? - ANS 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. - ANS 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.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, 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? - ANS 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. - ANS 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:
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND ANSWERS. VERIFIED
2025/2026.
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? - ANS 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. - ANS 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.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, 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? - ANS 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. - ANS 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:
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
