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GACE Business (715) study materials
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GACE Business (715) practice questions

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Question 1Business Basics and the Global Economy

A U.S. retailer buys handbags from an Italian supplier and pays in euros. Which situation creates a transaction (foreign exchange) risk for the retailer?

  1. Italian labor unions negotiate higher wages for factory workers
  2. The euro strengthens against the dollar before the payment is due Correct answer.
  3. The retailer's domestic shipping costs rise during the same quarter
  4. The retailer's home-state sales tax rate increases mid-year

Explanation

Transaction risk arises when a firm has a payable or receivable denominated in a foreign currency and the exchange rate moves before settlement. If the euro appreciates, the dollar cost of the payable increases, reducing the retailer's margin. The other events affect costs or taxes but do not involve currency conversion of the payable.

Question 2Business Basics and the Global Economy

Which term describes a country's economic policy of removing tariffs and quotas to increase trade with other nations?

  1. Trade liberalization Correct answer.
  2. Protectionism
  3. Dumping
  4. Import substitution

Explanation

Trade liberalization is the reduction or elimination of barriers such as tariffs and quotas to expand cross-border exchange. Protectionism and import substitution move in the opposite direction by shielding domestic producers. Dumping refers to selling exports below cost or below home-market price.

Question 3Business Basics and the Global Economy

A firm operates factories in several countries and makes decisions at headquarters about product design, pricing, and hiring standards worldwide. This best describes which organizational approach to international business?

  1. Export-only strategy relying on agents
  2. Global strategy with centralized standardization Correct answer.
  3. Multidomestic strategy with decentralized local autonomy
  4. Franchising arrangement with local owners

Explanation

A global strategy centralizes key decisions and standardizes products and practices across markets to capture scale economies. A multidomestic approach instead delegates decisions to local units to fit local conditions. Exporting and franchising describe entry modes, not the degree of central coordination described.

Question 4Business Basics and the Global Economy

A country's currency becomes cheaper relative to its trading partners' currencies. What is the most likely short-run effect on its exports and imports?

  1. Exports become cheaper abroad and imports become more expensive at home Correct answer.
  2. Both exports and imports become more expensive in the home market
  3. Both exports and imports become cheaper in the home market
  4. Exports become more expensive abroad and imports become cheaper at home

Explanation

A weaker currency lowers the foreign-currency price of a country's exports, making them more competitive abroad, and raises the home-currency cost of imports. This combination tends to improve the trade balance, subject to demand elasticities. The reverse pattern occurs when a currency strengthens.

Question 5Business Basics and the Global Economy

Which document, issued by a bank on behalf of an importer, guarantees payment to an exporter once specified shipping documents are presented?

  1. Bill of lading
  2. Commercial invoice
  3. Letter of credit Correct answer.
  4. Certificate of origin

Explanation

A letter of credit substitutes the bank's credit for the importer's, promising payment when compliant documents are presented. The bill of lading is a carrier's receipt and contract of carriage, the invoice states the amount owed, and the certificate of origin declares where goods were produced.

Question 6Business Basics and the Global Economy

A business decides to expand abroad by licensing its brand and production process to a foreign firm in exchange for royalties. What is a primary advantage of this entry mode?

  1. Complete control over the licensee's daily operations
  2. Immediate ownership of foreign distribution channels
  3. Elimination of the risk that proprietary knowledge is misused
  4. Low capital commitment with limited financial risk Correct answer.

Explanation

Licensing requires little capital because the foreign partner supplies facilities and local knowledge while paying royalties. The trade-off is weaker operational control and the risk that the licensee may misuse or leak proprietary technology. It does not confer ownership of distribution or eliminate knowledge risk.

Question 7Business Basics and the Global Economy

Which of the following is counted in a nation's balance of payments current account?

  1. Revenue from services exported to another country Correct answer.
  2. A loan made by a foreign bank to a domestic firm
  3. A domestic resident's purchase of foreign stocks
  4. A foreign company's purchase of a domestic factory

Explanation

The current account records trade in goods and services, income flows, and unilateral transfers, so exported services belong there. Purchases of factories, securities, and cross-border loans are capital and financial account items.

Question 8Business Basics and the Global Economy

A small firm wants to test foreign demand before committing capital to overseas facilities. Which entry mode best matches this goal?

  1. Wholly owned subsidiary
  2. Joint venture with a local manufacturer
  3. Indirect exporting through domestic intermediaries Correct answer.
  4. Greenfield construction of a plant abroad

Explanation

Indirect exporting uses intermediaries and requires minimal investment, making it a low-risk way to gauge foreign demand. Subsidiaries, joint ventures, and greenfield plants all commit substantial capital and organizational resources before demand is proven.

Question 9Business Basics and the Global Economy

A government imposes a tax on imported steel to protect domestic producers. Which effect is most consistent with standard trade theory?

  1. Government revenue always exceeds the welfare loss to consumers
  2. The tariff lowers the price domestic buyers pay for steel
  3. Domestic steel producers lose market share to foreign competitors
  4. Domestic consumers pay higher prices and total economic welfare tends to fall Correct answer.

Explanation

A tariff raises the domestic price of the imported good, transferring income from consumers to producers and government while creating deadweight loss. Domestic producers typically gain share rather than lose it, and the revenue collected rarely offsets the full consumer loss.

Question 10Business Basics and the Global Economy

A U.S. company earns 2 million euros from a German client and will receive payment in 90 days. Which action directly reduces its exposure to euro depreciation?

  1. Borrowing dollars against the receivable at a variable rate
  2. Delaying collection of the receivable beyond 90 days
  3. Entering a forward contract to sell euros in 90 days Correct answer.
  4. Buying additional euros on the spot market today

Explanation

A forward contract locks in an exchange rate for a future currency sale, removing uncertainty about the euro's value when the receivable arrives. Spot purchases increase euro holdings, delay extends exposure, and dollar borrowing does not hedge the currency mismatch.

Question 11Business Basics and the Global Economy

Country A can produce a good at lower opportunity cost than Country B. This situation illustrates which concept?

  1. Product life cycle
  2. Economies of scale
  3. Comparative advantage Correct answer.
  4. Absolute advantage

Explanation

Comparative advantage exists when a country produces a good at a lower opportunity cost than a trading partner, which is the basis for mutually beneficial specialization. Absolute advantage compares output per unit of input rather than opportunity cost. Economies of scale and product life cycle describe cost and market evolution, not relative opportunity cost.

Question 12Business Basics and the Global Economy

A nation's currency is described as freely floating. What primarily determines its exchange rate?

  1. The nation's gold reserves alone
  2. Supply and demand in foreign exchange markets Correct answer.
  3. A basket of commodities set by treaty
  4. A fixed peg maintained by the central bank

Explanation

In a freely floating regime, market supply and demand for the currency determine its value without central-bank targeting. Fixed pegs, commodity baskets, and metal reserves describe managed or historical systems rather than floating rates.

Question 13Business Basics and the Global Economy

A company wants a foreign partner's local market knowledge and political connections but also wants to share the financial and operational risks of a new overseas venture. Which entry mode fits best?

  1. Franchising
  2. Direct exporting
  3. Joint venture Correct answer.
  4. Turnkey project

Explanation

A joint venture creates a shared ownership entity in which partners contribute capital, knowledge, and risk, making it well suited to accessing local expertise while spreading exposure. Franchising and exporting involve less shared ownership, and a turnkey project transfers a completed facility to a client.

Question 14Business Basics and the Global Economy

Which cultural dimension most directly concerns whether a society expects hierarchy and unequal power distribution to be accepted?

  1. Uncertainty avoidance
  2. Individualism versus collectivism
  3. Power distance Correct answer.
  4. Long-term orientation

Explanation

Power distance measures the extent to which less powerful members accept that power is distributed unequally. Individualism addresses group versus individual ties, uncertainty avoidance concerns tolerance for ambiguity, and long-term orientation concerns future-oriented values.

Question 15Business Basics and the Global Economy

A country runs a persistent current account deficit. Which combination is most likely to accompany it?

  1. Automatic elimination of the deficit through floating exchange rates
  2. Net capital inflows financing the deficit Correct answer.
  3. Zero net foreign borrowing by the country
  4. A simultaneous surplus in the financial account of equal size is impossible

Explanation

By balance-of-payments accounting, a current account deficit must be financed by net inflows on the capital and financial accounts, such as foreign investment or borrowing. Floating rates may adjust the deficit over time but do not guarantee automatic elimination.

Question 16Business Basics and the Global Economy

A government sets a ceiling on the quantity of a good that may be imported each year. This policy instrument is a:

  1. Subsidy
  2. Embargo
  3. Tariff
  4. Quota Correct answer.

Explanation

A quota limits the physical quantity of an imported good, restricting supply and typically raising its domestic price. A tariff taxes imports, a subsidy supports domestic producers, and an embargo bans trade entirely.

Question 17Business Basics and the Global Economy

An exporter ships goods and wants a document that serves as a carrier's receipt, evidences the contract of carriage, and can function as document of title. Which document is required?

  1. Insurance certificate
  2. Pro forma invoice
  3. Packing list
  4. Bill of lading Correct answer.

Explanation

The bill of lading is issued by the carrier and serves as a receipt, contract of carriage, and, when negotiable, a document of title that controls release of the goods. Invoices, packing lists, and insurance certificates support the shipment but do not transfer title.

Question 18Business Basics and the Global Economy

A firm shifts production to a foreign country to serve that country's market and thereby avoids paying its high import tariffs. Which motive for foreign direct investment does this illustrate?

  1. Market-seeking investment with tariff jumping Correct answer.
  2. Resource-seeking investment
  3. Efficiency-seeking investment in low-wage locations
  4. Strategic asset acquisition

Explanation

Tariff-jumping FDI locates production inside a protected market so that goods are sold locally without crossing the tariff wall. Resource-seeking targets raw materials, efficiency-seeking targets low production costs for export, and strategic asset acquisition targets acquiring capabilities.

Question 19Business Basics and the Global Economy

A country's central bank raises interest rates relative to its trading partners while other factors are held constant. What is the most likely effect on its currency?

  1. The currency tends to depreciate as investors avoid higher yields
  2. The currency is automatically fixed to the partner currencies
  3. The currency tends to appreciate as capital inflows increase Correct answer.
  4. The currency's value is unaffected because interest rates do not influence capital flows

Explanation

Higher relative interest rates attract foreign capital seeking higher returns, raising demand for the currency and tending to appreciate it. Interest-rate differentials are a major driver of short-run capital flows in floating-rate systems.

Question 20Business Basics and the Global Economy

A multinational faces criticism for paying below-local-living-wage rates in a developing country. Which response best reflects a socially responsible approach to global labor practices?

  1. Adopting a code of conduct with minimum labor standards applied across all facilities Correct answer.
  2. Delegating wage decisions entirely to local suppliers without oversight
  3. Relocating to another country with fewer labor regulations
  4. Following only the legal minimum in each country regardless of impact

Explanation

A consistent code of conduct with minimum standards applies a common ethical floor across countries and addresses reputational and stakeholder concerns. Relying solely on legal minimums, ignoring suppliers, or relocating to weaker jurisdictions shifts rather than resolves the issue.

Question 21Business Basics and the Global Economy

A firm has a payable of 500,000 Swiss francs due in six months and expects the franc to appreciate. Which strategy most directly protects its budgeted dollar cost?

  1. Waiting to buy francs at the spot rate when payment is due
  2. Purchasing a forward contract to buy francs in six months Correct answer.
  3. Investing surplus dollars in Swiss equities
  4. Selling francs forward for delivery in six months

Explanation

Locking in the purchase price of francs with a forward contract fixes the dollar cost of the payable and eliminates downside risk from franc appreciation. Waiting leaves the firm exposed, equity investment adds market risk, and selling francs forward would worsen the exposure.

Question 22Business Basics and the Global Economy

A regional trade agreement eliminates internal tariffs but each member keeps its own external tariff. This arrangement is best described as a:

  1. Free trade area Correct answer.
  2. Common market
  3. Customs union
  4. Economic union

Explanation

A free trade area removes barriers among members while each retains independent external trade policies, which requires rules of origin to prevent trade deflection. A customs union adds a common external tariff, a common market adds factor mobility, and an economic union adds harmonized economic policy.

Question 23Business Basics and the Global Economy

Country X can produce 10 units of cloth or 5 units of wine with one unit of resources; Country Y can produce 4 units of cloth or 4 units of wine with the same resources. Based on opportunity cost, which pattern of specialization is mutually beneficial?

  1. Country X specializes in cloth and Country Y in wine Correct answer.
  2. Neither country should trade because Country X is more productive in both goods
  3. Country X specializes in wine and Country Y in cloth
  4. Both countries specialize in cloth

Explanation

Country X's opportunity cost of one cloth is 0.5 wine, while Country Y's is 1 wine, so X has a comparative advantage in cloth. Country Y gives up 1 cloth per wine versus X's 2 cloth per wine, so Y has a comparative advantage in wine. Absolute productivity in both goods does not preclude gains from trade.

Question 24Business Basics and the Global Economy

A government finances a large budget deficit partly through foreign borrowing. Which consequence is most consistent with economic analysis of this policy?

  1. Increased demand for loanable funds that can raise interest rates and crowd out private investment Correct answer.
  2. An immediate reduction in the national debt through higher tax revenue
  3. Elimination of the current account imbalance without adjustment costs
  4. Automatic depreciation of the currency with no effect on capital flows

Explanation

Deficit financing raises demand for loanable funds, which tends to push interest rates up and can crowd out private investment. Foreign borrowing also creates future debt-service obligations and may affect the currency, but it does not automatically erase imbalances or reduce debt.

Question 25Business Basics and the Global Economy

An exporter is offered payment either in its own currency or in the importer's currency, which is volatile. Which consideration is most relevant to the choice?

  1. The importer's currency is always preferable because it is foreign
  2. Invoicing in the importer's currency always increases the exporter's revenue
  3. Currency choice has no effect on the allocation of exchange-rate risk
  4. Invoicing in the home currency shifts exchange-rate risk to the importer and may require a price concession Correct answer.

Explanation

Invoicing in the exporter's currency transfers currency risk to the importer, who may demand a lower price as compensation. Choosing the importer's volatile currency leaves the exporter bearing depreciation risk. The allocation of risk, not the mere foreignness of a currency, drives the decision.

Question 26Business Basics and the Global Economy

A business plan describes the company's purpose, its target customers, and the problem its product solves. Which section of the business plan does this describe?

  1. The break-even analysis
  2. The marketing mix
  3. The organizational chart
  4. The mission and value proposition Correct answer.

Explanation

The mission statement expresses why the business exists, while the value proposition explains the specific benefit offered to a defined customer group. Together they anchor the rest of the plan and guide decisions about marketing, staffing, and financing.

Question 27Business Basics and the Global Economy

Which form of business ownership exposes the owners to personal liability for the debts of the business while also being taxed only once at the owners' individual rates?

  1. A C corporation
  2. A sole proprietorship Correct answer.
  3. A publicly traded partnership with limited partners
  4. A limited liability company taxed as a corporation

Explanation

A sole proprietorship is not a separate legal entity, so the owner is personally liable and profits pass through to the owner's individual tax return. This combination of unlimited liability and single taxation is the defining trade-off of that structure.

Question 28Business Basics and the Global Economy

A retailer records only the cost of goods when a sale occurs, matching that cost against the sales revenue from the same period. Which accounting principle is being applied?

  1. The matching principle Correct answer.
  2. The going-concern assumption
  3. The monetary-unit assumption
  4. The full-disclosure principle

Explanation

The matching principle requires that expenses be recognized in the same period as the revenues they helped generate. Recording cost of goods sold alongside the related sale is a direct application of that rule.

Question 29Business Basics and the Global Economy

A bakery sells 4,000 loaves per month at $5 each. Variable cost is $3 per loaf and fixed costs are $6,000 per month. What is the bakery's monthly operating income?

  1. $8,000
  2. $2,000 Correct answer.
  3. $14,000
  4. $20,000

Explanation

Contribution margin per loaf is $5 minus $3, or $2, which totals $8,000 at 4,000 loaves. Subtracting the $6,000 of fixed costs leaves operating income of $2,000.

Question 30Business Basics and the Global Economy

A firm's supplier raises prices sharply, and the firm's own customers are highly price sensitive. Which pricing response best protects sales volume while preserving some margin?

  1. Raise the product price by the full amount of the supplier increase
  2. Bundle the product with a premium accessory and raise the total price
  3. Reduce product quality so the input cost falls back to the prior level
  4. Hold the price and accept a temporary reduction in unit margin Correct answer.

Explanation

When demand is elastic, a full cost pass-through would likely drive away many customers, so absorbing part of the increase protects volume. The firm can then seek cost reductions or gradual price adjustments over time.

Question 31Business Basics and the Global Economy

A manager wants a visual tool that shows the sequence of steps in a process and highlights where delays and rework occur. Which quality tool is most appropriate?

  1. A flowchart Correct answer.
  2. A Pareto chart
  3. A control chart
  4. A histogram

Explanation

A flowchart maps each step of a process, making handoffs, decision points, and sources of delay visible. That makes it the standard tool for understanding process flow before redesign.

Question 32Business Basics and the Global Economy

A company's marketing team segments buyers by age, income, and education. Which type of segmentation is being used?

  1. Psychographic segmentation
  2. Demographic segmentation Correct answer.
  3. Behavioral segmentation
  4. Geographic segmentation

Explanation

Demographic segmentation divides a market using measurable population characteristics such as age, income, education, and gender. These variables are widely used because they are easy to collect and often correlate with purchasing patterns.

Question 33Business Basics and the Global Economy

A firm advertises heavily to build awareness of a newly introduced product category. According to the product life cycle, which stage is the product most likely in?

  1. Introduction Correct answer.
  2. Decline
  3. Maturity
  4. Growth

Explanation

In the introduction stage, buyers are largely unaware of the product, so promotion focuses on building primary demand and explaining the category. Profits are typically low or negative while costs are high.

Question 34Business Basics and the Global Economy

A warehouse manager wants to reduce the total cost of ordering and holding inventory. Which model determines the order quantity that minimizes the sum of these two costs?

  1. The economic order quantity model Correct answer.
  2. The ABC classification model
  3. The reorder point model
  4. The just-in-time model

Explanation

The economic order quantity balances ordering costs, which fall as order size grows, against holding costs, which rise with order size. The quantity where the combined cost is lowest is the EOQ.

Question 35Business Basics and the Global Economy

A job applicant is asked to describe a past situation, the action taken, and the result achieved. Which selection technique does this illustrate?

  1. A behavioral interview Correct answer.
  2. A work sample test
  3. A structured situational judgment test
  4. An unstructured panel interview

Explanation

Behavioral interviewing rests on the premise that past behavior predicts future performance, so candidates are asked for concrete examples of prior experience. Probing for situation, action, and result is the standard format for such questions.

Question 36Business Basics and the Global Economy

A company's code of conduct prohibits accepting gifts of more than nominal value from suppliers. A purchasing manager receives an expensive watch from a vendor just before a contract renewal. What is the most appropriate action?

  1. Hold the watch until after the contract decision is announced
  2. Decline or return the gift and disclose the offer to a supervisor Correct answer.
  3. Keep the watch because it was given as a personal gift
  4. Accept the watch but award the contract to a different supplier

Explanation

A gift of substantial value from a party with a pending business decision creates a conflict of interest and violates typical gift policies. Declining or returning it and disclosing the offer protects both the manager's objectivity and the company's reputation.

Question 37Business Basics and the Global Economy

A company's website must allow users with visual impairments to navigate and complete purchases. Which practice best supports this goal?

  1. Publishing product images without descriptive text to reduce page weight
  2. Restricting checkout to a downloadable desktop application
  3. Providing text alternatives for images and keyboard-accessible controls Correct answer.
  4. Relying on color alone to indicate required form fields

Explanation

Accessible design requires that non-text content have equivalent text alternatives and that all functions be operable without a mouse. These practices allow screen readers and keyboard-only users to complete the same tasks as other customers.

Question 38Business Basics and the Global Economy

A firm collects and stores personal data about customers in several countries. Which practice best supports compliance with data protection expectations?

  1. Selling contact lists to partners without notifying customers
  2. Collecting all available data in case it becomes useful later
  3. Limiting collection to stated purposes and honoring deletion requests Correct answer.
  4. Retaining records indefinitely to preserve marketing history

Explanation

Data protection frameworks generally rest on purpose limitation, data minimization, and giving individuals rights over their information. Collecting only what is needed for disclosed purposes and honoring access or deletion requests aligns with those principles.

Question 39Business Basics and the Global Economy

A local manufacturer decides to sell its products in another country where demand is unproven and capital is limited. Which entry mode best matches these constraints?

  1. Acquiring a distribution company in the target market
  2. Forming a joint venture with a government-owned firm
  3. Building a wholly owned production plant
  4. Exporting through a local distributor Correct answer.

Explanation

Exporting requires little capital and can be tested at modest scale, while a local distributor supplies market access and customer knowledge. This makes it a low-commitment way to gauge demand before larger investments.

Question 40Business Basics and the Global Economy

A country's exports total $300 billion, imports $360 billion, and net unilateral transfers are zero. What does the merchandise trade balance show?

  1. A balanced position of zero
  2. A surplus of $60 billion
  3. A deficit of $60 billion Correct answer.
  4. A deficit of $660 billion

Explanation

The merchandise trade balance is exports minus imports, so $300 billion minus $360 billion yields a deficit of $60 billion. A deficit means the country imported more goods by value than it exported during the period.

Question 41Business Basics and the Global Economy

A firm faces a large payment due in a foreign currency and wants to lock in the exchange rate today for that future transaction. Which instrument directly accomplishes this?

  1. A forward contract Correct answer.
  2. A letter of credit
  3. A bill of lading
  4. A sight draft

Explanation

A forward contract fixes a price today for currency to be exchanged on a specified future date, removing uncertainty about the rate. It is the standard tool for hedging a known foreign-currency obligation.

Question 42Business Basics and the Global Economy

A multinational wants to compare the attractiveness of several emerging markets. Which measure best captures the total value of goods and services produced within a country in a year?

  1. Gross national income adjusted for purchasing power
  2. The unemployment rate
  3. The consumer price index
  4. Gross domestic product Correct answer.

Explanation

Gross domestic product measures the market value of all final goods and services produced within a country's borders during a period. It is the standard headline measure of the size of a national economy.

Question 43Business Basics and the Global Economy

A country's government sharply increases spending on infrastructure while tax revenue is unchanged, and the economy is already near full employment. Which outcome is most consistent with standard macroeconomic reasoning?

  1. A reduction in imports caused by higher domestic income
  2. An immediate fall in the national debt
  3. Upward pressure on interest rates and possible crowding out of private investment Correct answer.
  4. A decrease in aggregate demand and falling prices

Explanation

Deficit-financed spending raises demand for loanable funds, which tends to push interest rates up and can crowd out interest-sensitive private investment. At full employment, the added demand is also more likely to show up in prices than in real output.

Question 44Business Basics and the Global Economy

A firm sells in a market with many competitors, differentiated products, and easy entry and exit. Which market structure does this describe?

  1. Perfect competition
  2. Monopolistic competition Correct answer.
  3. Monopoly
  4. Oligopoly

Explanation

Monopolistic competition combines many sellers and free entry with product differentiation, giving each firm some pricing power over its own variety. Easy entry erodes excess profit over time, which distinguishes it from oligopoly.

Question 45Accounting, Finance, and Business Law

A business receives a $2,400 cash payment in advance for services it will perform over the next six months. Under accrual accounting, how should this receipt be recorded at the time of collection?

  1. As a debit to Cash and a credit to Service Revenue
  2. As a debit to Accounts Receivable and a credit to Service Revenue
  3. As a debit to Cash and a credit to Unearned Revenue Correct answer.
  4. As a debit to Unearned Revenue and a credit to Cash

Explanation

Cash received before the service is performed creates a liability because the business still owes the customer performance. The entry debits Cash and credits Unearned Revenue, and revenue is recognized later as the obligation is satisfied.

Question 46Accounting, Finance, and Business Law

Which financial statement reports the changes in a company's retained earnings over a period, including net income and dividends?

  1. The statement of retained earnings Correct answer.
  2. The income statement
  3. The statement of cash flows
  4. The balance sheet

Explanation

The statement of retained earnings reconciles beginning retained earnings with net income and dividends to arrive at the ending balance. The balance sheet then reports that ending balance within stockholders' equity.

Question 47Accounting, Finance, and Business Law

A company's current assets total $180,000 and its current liabilities total $120,000. What is the current ratio?

  1. 1.50 Correct answer.
  2. 0.67
  3. 1.20
  4. 2.25

Explanation

The current ratio equals current assets divided by current liabilities, so $180,000 divided by $120,000 equals 1.50. A ratio above 1.0 indicates that short-term assets cover short-term obligations.

Question 48Accounting, Finance, and Business Law

Which inventory costing method assumes that the most recently purchased units are the first ones sold?

  1. LIFO Correct answer.
  2. FIFO
  3. Specific identification
  4. Weighted average

Explanation

LIFO, or last-in first-out, assigns the most recent purchase costs to cost of goods sold. In periods of rising prices this typically produces a higher cost of goods sold and lower ending inventory than FIFO.

Question 49Accounting, Finance, and Business Law

Under the double-declining-balance method, an asset with a four-year useful life is depreciated using what annual rate applied to beginning book value?

  1. 25 percent
  2. 100 percent
  3. 50 percent Correct answer.
  4. 33 percent

Explanation

Double-declining-balance uses twice the straight-line rate, so a four-year life implies a 25 percent straight-line rate and a 50 percent declining rate. The rate is applied to the asset's beginning book value each year.

Question 50Accounting, Finance, and Business Law

Which of the following best describes the accounting equation?

  1. Equity equals assets plus liabilities
  2. Liabilities equal assets plus equity
  3. Assets equal revenues minus expenses
  4. Assets equal liabilities plus equity Correct answer.

Explanation

The accounting equation states that total assets equal total liabilities plus owners' equity. Every recorded transaction keeps this equality intact by affecting at least two elements.