HBX Core Financial Accounting Final Exam/
Actual Exam Questions with 100% Verified
Answers/ Updated 2024/ Rated A+
Key indicators to look for in identifying implicit transactions: - ANSWER - (1) No transfer
of resources
(2) No invoices or other paper documentation
(3) No specific event or activity that clearly triggers a journal entry, just the passing of
time
(4) Judgement regarding when to record and how much to record
accrual method of accounting - ANSWER - means that companies record both explicit
and implicit transactions in the period in which they are incurred, which is not
necessarily the same period in which cash was paid or received
Accruals - ANSWER - transactions where cash changes hands after revenue or
expense is recognized
Deferrals - ANSWER - transactions where cash changes hands before revenue or
expense is recorded
Accruals and deferrals always involve revenues or expenses - ANSWER - are the
essence of two important concepts we have already covered—revenue recognition and
the matching principle
As part of the 2013 year end close, your company evaluates any potential liabilities
related to 2013 activities that will be paid in 2014. The company ran an advertising
campaign in December for which you agreed to pay $100,000, but you have not yet
received the invoice.
, 2
What would the journal entry look like to record this obligation? - ANSWER - In this
case, your company has not received a bill but based on their evaluation concludes that
there are obligations coming from 2013 activities that will have to be settled in 2014.
These obligations are recorded as liabilities in 2013 because they relate to 2013
activities. You should debit Advertising Expenses for $100,000 and credit Accrued
Expenses (a liability account) for $100,000.
Net Present Value - Correct Answer - Is a calculation of the present values of all the
cash inflows and outflows of a project or investment.
Excel formula =NPV(E4,B3:B12)+B2
Remember,for NPV you have to manually add the negative outflow from time zero
related to the initial investment.
Asset/Expense Accounts - Correct Answer - Asset and expense accounts increase with
debit and decrease with credit.
Income Statement - Correct Answer - Shows a company's financial performance,
because it shows the accumulation of all nominal accounts over a period of time.
Gross Profit - Correct Answer - Sales Revenue minus COGS.
Internal Rate of Return (IRR) - Correct Answer - The discount rate that sets the net
present value (NPV) of a project equal to zero. The IRR allows us to find the percentage
rate that would be earned for a given set of cash flows.
, 3
Which of the following is the amount of the tax liability that pertains to the current period
and is payable in the next 12 months? - ANSWER - Deferred Tax Liability
This is the amount that arises when Taxable Income is less than Income Before Taxes
due to a temporary timing difference.
Which of the following arises when Taxable Income exceeds Income Before Taxes due
to a temporary timing difference? - ANSWER - Deferred Tax Asset
This is the amount that arises when Taxable Income exceeds Income Before Taxes due
to a temporary timing difference.
It is mid-January and Company A is closing their year ending December 31, 2013 and
they need to make their tax entry. The Income Before Taxes for the year is $110,000.
Company A has also prepared a preliminary tax return for the year but the Taxable
Income was only $100,000 due to the fact that the tax deduction for depreciation was
greater than the depreciation expense. The tax rate is 30%. There have been no entries
related to income taxes made for the year up to this point. Taxes are not required to be
paid until April 15, 2014.What is the entry required as of December 31, 2013 to record
taxes? - ANSWER - The company needs to record the income taxes related to 2013.
Because there is a temporary timing difference related to depreciation expense, the
company will need to record deferred taxes related to the difference, in addition to
recording income tax expense and taxes payable.
The correct answer is to debit Income Tax Expense for $33,000 ($110,000 * 30%), credit
Taxes Payable for $30,000 ($100,000 * 30%), and credit Deferred Income Tax Liability
for $3,000 (the difference between Income Tax Expense and Taxes Payable).
Deferred Tax Asset - Correct Answer - Arises when taxable income exceeds Income
Before Taxes due to a temporary timing difference.
When a deferred Tax Asset arises it means a company is recognizing Tax Expense now
on an amount of income that will be reflected in the financial records later.
, 4
Income Before Taxes - Correct Answer - The amount shown on the Income Statement
after all expenses have been taken away from the revenue for the period but before any
tax expense for the period. May also be referred to as Pretax Profit.
Profit Margin - Correct Answer - (Net Income/Sales ) measures the ability of a company
to make a profit relative to revenue generated during a period. A Profit Margin of 19%
tells us that for every $100 in sales, $19 ended up in Net Income.
Profit Margin - Correct Answer - Profit Margin (Net Income/Sales) measures the ability
of a company to make a profit relative to revenue generated during a period.
In Excel Net Income/Revenue.
Average Collection Period - Correct Answer - 365/AR Turnover =365/(Credit Sales/
Average AR Balance)
Current Ratio - Correct Answer - The current ratio is a measure of a business' ability to
pay its short term obligations.
Quick Ratio - Correct Answer - measures the ability of a company to use its quick
assets to pay off its short-term debts.
Debt to Equity Ratio - Correct Answer - measures a company's leverage, not ability to
pay off its debts.
Indirect Method to create the Statement of Cash Flows - Correct Answer - A gain, an
increase in operating assets, and a decrease in operating current liabilities would all
need to be subtracted from net income in order to convert net income into operating
cash flow when using the indirect method to create the Statement of Cash Flows.
Gordon Growth Model - Correct Answer - A method for calculating the terminal value of
an indefinite stream of cash flows. The calculation gives the present value of infinite
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