HBS CORE FINAL EXAM PREP QUESTIONS AND 100%
CORRECT ANSWERS LATEST UPDATE!!
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. - ANSWER
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.
Which of the following is an example of owners' equity? Select all that apply. -
ANSWER 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 an expense? Select all that apply. -
ANSWER The cost of a home store's inventory of glassware that is thrown away
because 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.
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: - ANSWER
Consistency.
The principle of Consistency requires that the accounting methods be
consistently 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.
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? - ANSWER 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.
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.
Which of the following is an example of an asset? Select all that apply. - ANSWER
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.
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?
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? - ANSWER 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.
, Which of the following is an example of a revenue? Select all that apply. -
ANSWER 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).
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. - ANSWER 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 increased.
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? - ANSWER Materiality. The decision about
the level of detail in grouping transactions into financial accounts is related to
how significant, or material, the transactions are.
Companies may include a footnote in their financial statements regarding key
market and industry risks that affect their business because users of the financial
statements would likely consider such information to be: - ANSWER Relevant.
Information that may affect a reasonable user's decision-making is considered
relevant.
Which of the following is an example of a liability? Select all that apply. -
ANSWER 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.
NOTES RECEIVABLE increases with a: - ANSWER Debit. Assets increase with a
debit.
CORRECT ANSWERS LATEST UPDATE!!
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. - ANSWER
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.
Which of the following is an example of owners' equity? Select all that apply. -
ANSWER 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 an expense? Select all that apply. -
ANSWER The cost of a home store's inventory of glassware that is thrown away
because 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.
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: - ANSWER
Consistency.
The principle of Consistency requires that the accounting methods be
consistently 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.
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? - ANSWER 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.
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.
Which of the following is an example of an asset? Select all that apply. - ANSWER
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.
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?
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? - ANSWER 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.
, Which of the following is an example of a revenue? Select all that apply. -
ANSWER 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).
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. - ANSWER 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 increased.
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? - ANSWER Materiality. The decision about
the level of detail in grouping transactions into financial accounts is related to
how significant, or material, the transactions are.
Companies may include a footnote in their financial statements regarding key
market and industry risks that affect their business because users of the financial
statements would likely consider such information to be: - ANSWER Relevant.
Information that may affect a reasonable user's decision-making is considered
relevant.
Which of the following is an example of a liability? Select all that apply. -
ANSWER 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.
NOTES RECEIVABLE increases with a: - ANSWER Debit. Assets increase with a
debit.
