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HBS Core Final Exam Prep Questions and 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. Ans: 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.
© 2026 Assignment
Which of the following is an example of owners' equity? Select all that
apply. Ans: Net income for the first four months of the fiscal year.
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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.
Ans: 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: Ans:
Consistency.
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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
© 2026 Assignment
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
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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?
Ans: 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.
Ans: 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.
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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
© 2026 Assignment
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
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the initial purchase.How would the accounting equation be impacted
when the payment is received? Ans: 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.
Ans: 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).
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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. Ans: 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
© 2026 Assignment
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
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expense that is reimbursed.
The reasoning behind recording the transactions in this manner relates to
which of the following accounting principles? Ans: 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:
Ans: 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.
Ans: 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: Ans: Debit. Assets increase with a
debit.
HBS Core Final Exam Prep Questions and 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. Ans: 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.
© 2026 Assignment
Which of the following is an example of owners' equity? Select all that
apply. Ans: Net income for the first four months of the fiscal year.
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Expert
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.
Ans: 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: Ans:
Consistency.
, 2 for specific request mail
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
© 2026 Assignment
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
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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?
Ans: 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.
Ans: 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.
, 3 for specific request mail
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
© 2026 Assignment
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
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Expert
the initial purchase.How would the accounting equation be impacted
when the payment is received? Ans: 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.
Ans: 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).
, 4 for specific request mail
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. Ans: 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
© 2026 Assignment
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
Guru01 - Stuvia
Expert
expense that is reimbursed.
The reasoning behind recording the transactions in this manner relates to
which of the following accounting principles? Ans: 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:
Ans: 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.
Ans: 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: Ans: Debit. Assets increase with a
debit.
