I85PREP
⌘ K
MTEL Business (19) study materials
MTEL Business (19) study resources

MTEL Business (19) practice questions

One question at a time. Build your MTEL Business (19) understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Business

A company records $48,000 of unearned revenue in December for services to be delivered evenly over the following four months. Under accrual accounting, what amount should be recognized as revenue in the January income statement?

  1. $0, because cash was received in December
  2. $48,000
  3. $36,000
  4. $12,000 Correct answer.

Explanation

Unearned revenue is a liability that is reduced as the performance obligation is satisfied. Because the $48,000 is earned evenly over four months, one quarter of it ($12,000) is earned each month, and the January adjusting entry debits Unearned Revenue and credits Service Revenue for that amount.

Question 2Business

Which financial statement reports the change in a firm's retained earnings over a period, including dividends declared?

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

Explanation

The statement of retained earnings reconciles beginning retained earnings with net income and dividends declared to arrive at ending retained earnings. The income statement reports net income, the balance sheet shows ending balances at a point in time, and the cash flow statement tracks cash movements.

Question 3Business

A firm has current assets of $180,000 and current liabilities of $120,000. It then uses $30,000 of cash to pay off short-term accounts payable. What happens to the current ratio?

  1. It falls to exactly 1.0
  2. It falls below 1.5
  3. It stays at 1.5
  4. It rises above 1.5 Correct answer.

Explanation

The current ratio before the transaction is 180,000/120,000 = 1.5. Paying payables with cash reduces current assets to $150,000 and current liabilities to $90,000, so the new ratio is about 1.67, which is higher. When the ratio exceeds 1, equal decreases to both numerator and denominator push the ratio upward.

Question 4Business

Which inventory costing method generally produces the highest cost of goods sold during a period of rising prices?

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

Explanation

LIFO assigns the most recently purchased, highest-cost units to cost of goods sold, so COGS is largest when prices are rising. FIFO would assign older, cheaper costs to COGS, and weighted average falls between the two.

Question 5Business

A business collects $5,000 from a customer for services to be performed next quarter and records the cash receipt. Which journal entry correctly records this transaction at the time of collection?

  1. Debit Accounts Receivable $5,000; credit Cash $5,000
  2. Debit Cash $5,000; credit Service Revenue $5,000
  3. Debit Cash $5,000; credit Unearned Revenue $5,000 Correct answer.
  4. Debit Unearned Revenue $5,000; credit Cash $5,000

Explanation

Because the service has not yet been performed, the company has a liability (a performance obligation), not revenue. The entry increases Cash with a debit and records the obligation with a credit to Unearned Revenue, which is later reduced when the service is delivered.

Question 6Business

A manager compares a company's gross profit margin with the industry average and finds it is several points lower. Which explanation is most consistent with that finding?

  1. The company is carrying excessive long-term debt
  2. The company's selling and administrative expenses are unusually high
  3. The company's product mix shifted toward lower-margin items Correct answer.
  4. The company pays dividends more frequently than peers

Explanation

Gross profit margin measures the spread between sales and cost of goods sold, so a shift toward lower-margin products directly compresses it. Administrative expenses, debt, and dividend policy affect operating or net results rather than the gross margin line.

Question 7Business

Which document typically authorizes a supplier to ship goods and serves as the buyer's order confirmation in a standard purchasing cycle?

  1. A credit memo
  2. A purchase order Correct answer.
  3. A bank reconciliation
  4. A remittance advice

Explanation

A purchase order is issued by the buyer to specify items, quantities, and terms, authorizing the supplier to fulfill the order. The supplier's invoice then bills for the shipment, and the buyer matches the order, receiving report, and invoice before paying.

Question 8Business

A company's bank statement shows a balance of $10,200 while its cash ledger shows $9,750. Outstanding checks total $800 and a customer's note collected by the bank was $300, with no other differences. What is the adjusted bank balance?

  1. $10,200
  2. $9,400 Correct answer.
  3. $10,500
  4. $9,700

Explanation

Outstanding checks have been deducted in the company's ledger but not yet by the bank, so they are subtracted from the bank balance: $10,200 - $800 = $9,400. The note collection adjusts the book balance upward rather than the bank side, so it does not enter this calculation.

Question 9Business

Which internal control principle is best illustrated by requiring that the employee who records cash receipts not also prepare the bank deposit?

  1. Documentation procedures
  2. Physical safeguards
  3. Segregation of duties Correct answer.
  4. Independent internal verification

Explanation

Segregation of duties divides related tasks among different people so that no single employee can both commit and conceal an error or fraud. Recording receipts and handling the deposit are incompatible functions that should be separated.

Question 10Business

A company issues a 90-day note for $20,000 at 6% annual interest. Using a 360-day year, what is the total interest on the note?

  1. $1,200
  2. $120
  3. $300 Correct answer.
  4. $900

Explanation

Interest equals principal times rate times time: $20,000 x 0.06 x (90/360) = $300. The 90/360 fraction reflects the three-month term of the note.

Question 11Business

A bond is issued at a discount. How does the issuer's carrying value of the bond change over its life if the effective-interest method is used?

  1. It decreases steadily toward face value
  2. It rises above face value before maturity
  3. It remains constant until maturity
  4. It increases steadily toward face value Correct answer.

Explanation

A discount means the bond was issued below face value, and the discount is amortized as additional interest expense over the term. Each period the carrying value increases until it equals face value at maturity.

Question 12Business

Which of the following best describes the role of the Federal Reserve when it raises the discount rate?

  1. It requires banks to hold a larger fraction of deposits as reserves
  2. It purchases government securities to add reserves to the banking system
  3. It increases the cost of borrowing reserves from the Fed, tending to tighten credit Correct answer.
  4. It directly sets the interest rates that commercial banks charge consumers

Explanation

The discount rate is the interest rate the Fed charges depository institutions that borrow reserves at its discount window. Raising it makes such borrowing more expensive and discourages reserve creation, which tends to tighten credit conditions.

Question 13Business

A country can produce either 100 units of cloth or 50 units of wine with its resources. Which statement reflects the concept of comparative advantage?

  1. The country should produce only the good with the higher money price
  2. The country should produce both goods to avoid dependence on trade
  3. The country should specialize in the good it produces in larger absolute quantities
  4. The country should specialize in cloth if its opportunity cost of cloth is lower than its trading partner's Correct answer.

Explanation

Comparative advantage is determined by opportunity cost, not absolute output. A country gains from trade by specializing in the good for which it gives up less of the other good than its trading partner does.

Question 14Business

A product has a price elasticity of demand of 1.8. If the seller raises the price, what is the expected effect on total revenue?

  1. Total revenue will fall because demand is elastic Correct answer.
  2. Total revenue will be unchanged because elasticity is constant
  3. Total revenue will rise, then fall back to its original level
  4. Total revenue will rise because the higher price applies to all units

Explanation

When demand is elastic (absolute elasticity greater than 1), the percentage drop in quantity demanded exceeds the percentage rise in price. The quantity effect dominates, so total revenue declines when price increases.

Question 15Business

Which market structure is characterized by many sellers, differentiated products, and relatively easy entry?

  1. Pure monopoly
  2. Oligopoly
  3. Perfect competition
  4. Monopolistic competition Correct answer.

Explanation

Monopolistic competition combines many firms and low entry barriers with product differentiation, giving each firm some pricing power. Perfect competition has homogeneous products, while oligopoly and monopoly involve few or single sellers.

Question 16Business

A firm's fixed costs are $60,000, its unit selling price is $25, and its unit variable cost is $15. What is the break-even point in units?

  1. 4,000 units
  2. 2,400 units
  3. 6,000 units Correct answer.
  4. 1,500 units

Explanation

The contribution margin per unit is $25 - $15 = $10. Break-even units equal fixed costs divided by contribution margin: $60,000 / $10 = 6,000 units.

Question 17Business

In a cash budget, which item would appear as a cash outflow in the financing section rather than the operating section?

  1. Payment of employee wages
  2. Repayment of principal on a bank loan Correct answer.
  3. Purchase of inventory for resale
  4. Collection of accounts receivable

Explanation

Loan principal repayments are financing activities because they involve transactions with creditors that fund the business. Wages, inventory purchases, and receivable collections are operating cash flows tied to daily business activity.

Question 18Business

A company's sales are $500,000, its average accounts receivable is $50,000, and its average inventory is $40,000. What is the accounts receivable turnover ratio?

  1. 8 times
  2. 12.5 times
  3. 10 times Correct answer.
  4. 5 times

Explanation

Accounts receivable turnover equals net credit sales divided by average accounts receivable: $500,000 / $50,000 = 10 times. This indicates the firm collects its average receivable about ten times per year.

Question 19Business

Which action by a project team best demonstrates the controlling function of management?

  1. Assigning new employees to project teams
  2. Setting annual sales targets for each region
  3. Comparing actual performance against standards and taking corrective action Correct answer.
  4. Developing a five-year strategic plan

Explanation

Controlling involves monitoring performance, comparing it with established standards, and correcting deviations. Setting targets and planning are part of planning, while assigning staff is organizing.

Question 20Business

A manager wants to motivate employees using Herzberg's two-factor theory. Which action addresses a motivator rather than a hygiene factor?

  1. Clarifying company policies on leave
  2. Increasing the base salary to match competitors
  3. Offering opportunities for recognition and advancement Correct answer.
  4. Improving the physical working conditions

Explanation

In Herzberg's theory, motivators such as recognition, achievement, responsibility, and advancement generate satisfaction and drive effort. Hygiene factors like pay, working conditions, and policies prevent dissatisfaction but do not by themselves motivate.

Question 21Business

A business is choosing between two projects of equal cost. Project A has a net present value of $12,000 and Project B has a net present value of $9,000. Based on capital budgeting criteria, which decision is appropriate?

  1. Select Project B because it has a lower risk profile by definition
  2. Select Project A because it adds more value in present-value terms Correct answer.
  3. Reject both projects because they have positive NPVs
  4. Select neither until the payback period is equal for both

Explanation

Under the net present value rule, a firm should accept projects with positive NPV and, when projects are mutually exclusive, choose the one with the higher NPV. Project A creates $3,000 more present value than Project B.

Question 22Business

Which of the following is a key advantage of a corporation compared with a sole proprietorship?

  1. The business ends when an owner dies
  2. Business income is taxed only once
  3. Ownership interests can be transferred through the sale of shares Correct answer.
  4. Owners face unlimited personal liability for business debts

Explanation

Corporate ownership is divided into shares that can generally be sold or transferred without dissolving the business. Corporations also offer limited liability to shareholders, but they face double taxation and more formal governance.

Question 23Business

A marketing manager segments a market by grouping customers according to their age, income, and education. Which type of segmentation is being used?

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

Explanation

Demographic segmentation divides a market using measurable population characteristics such as age, income, education, and gender. Psychographic segmentation instead relies on lifestyles, values, and attitudes.

Question 24Business

A retailer notices that sales of umbrellas rise sharply during rainy weeks. Which marketing environment force does this most directly illustrate?

  1. Cultural environment
  2. Technological environment
  3. Natural environment Correct answer.
  4. Political environment

Explanation

The natural environment includes weather and climate conditions that affect demand for certain products. Rainy weather driving umbrella sales is a direct natural-environment influence on consumer behavior.

Question 25Business

Which statement best describes the purpose of the product life cycle in marketing planning?

  1. It sets the exact number of units a firm should produce each quarter
  2. It guides adjustments to pricing, promotion, and distribution as a product moves through introduction, growth, maturity, and decline Correct answer.
  3. It guarantees that every product will reach the maturity stage
  4. It replaces the need for market research once a product is launched

Explanation

The product life cycle is a planning framework describing stages a product may pass through and suggesting how marketing mix decisions should shift at each stage. It is a guide, not a guarantee of stage progression or output levels.

Question 26Business

A business receives a shipment of merchandise and later receives the supplier's invoice. Which accounting treatment records the purchase under the accrual basis at the time the goods are received?

  1. Debit Cash and credit Purchases
  2. Debit Accounts Payable and credit Cash
  3. Debit Purchases (or Inventory) and credit Accounts Payable Correct answer.
  4. Debit Purchases and credit Sales Revenue

Explanation

Under accrual accounting, a purchase is recorded when the obligation is incurred, not when cash moves. Receiving the goods creates a liability to the supplier, so the asset or expense account is debited and Accounts Payable is credited.

Question 27Business

A firm reports net income of $48,000, depreciation expense of $9,000, and an increase in accounts receivable of $6,000. Using the indirect method, what is cash flow from operating activities?

  1. $63,000
  2. $51,000 Correct answer.
  3. $33,000
  4. $45,000

Explanation

Start with net income, add back noncash depreciation, and subtract the increase in receivables because revenue collected in cash was less than revenue earned. The computation is $48,000 + $9,000 − $6,000 = $51,000.

Question 28Business

A company uses the allowance method and estimates that 2% of $400,000 of credit sales will be uncollectible. It already has a $1,500 credit balance in Allowance for Doubtful Accounts. What bad debt expense is recorded under the income-statement approach?

  1. $6,500
  2. $1,500
  3. $9,500
  4. $8,000 Correct answer.

Explanation

The income-statement approach bases the expense on the current period's credit sales, so 2% × $400,000 = $8,000. The existing allowance balance is not used to compute expense under this method because the focus is on matching current sales with estimated losses.

Question 29Business

A retailer purchases inventory for $5,000 with credit terms of 2/10, n/30 and pays within the discount period. Under the gross method, what amount is recorded as the cost of the inventory initially?

  1. $4,900
  2. $5,100
  3. $5,000 Correct answer.
  4. $4,800

Explanation

Under the gross method, purchases are recorded at the full invoice price and any discount is recognized only when payment is made within the discount period. The initial inventory cost is therefore the full $5,000.

Question 30Business

A company's inventory turnover ratio fell from 8.0 to 5.5 over one year while its gross profit margin stayed constant. Which conclusion is most consistent with these results?

  1. The company is holding inventory longer, which may signal weaker demand or excess stock Correct answer.
  2. The company is collecting its receivables more slowly than before
  3. The company has increased its debt financing during the year
  4. The company has reduced its selling prices to boost volume

Explanation

Inventory turnover measures how many times inventory is sold and replaced in a period; a falling ratio means goods sit longer before sale. With a stable gross margin, the slowdown points to inventory management issues such as overstocking or softening demand rather than pricing changes.

Question 31Business

A company has current assets of $300,000, inventory of $120,000, and current liabilities of $150,000. What is the quick (acid-test) ratio?

  1. 1.5
  2. 0.8
  3. 1.2 Correct answer.
  4. 2.0

Explanation

The quick ratio excludes inventory from current assets, so ($300,000 − $120,000) ÷ $150,000 = 1.2. This measures the firm's ability to cover short-term obligations without relying on selling inventory.

Question 32Business

A firm's contribution margin ratio is 40%, and fixed costs are $80,000. What sales revenue is needed to earn a target operating income of $20,000?

  1. $200,000
  2. $250,000 Correct answer.
  3. $50,000
  4. $500,000

Explanation

Required sales equal (fixed costs + target income) ÷ contribution margin ratio, or ($80,000 + $20,000) ÷ 0.40 = $250,000. At that level, contribution margin of $100,000 covers fixed costs and leaves the target profit.

Question 33Business

A manufacturer allocates overhead using direct labor hours. Estimated overhead is $180,000 and estimated direct labor hours are 12,000. Actual overhead incurred was $175,000 and actual hours worked were 13,000. What is the amount of overhead applied to production?

  1. $180,000
  2. $175,000
  3. $195,000 Correct answer.
  4. $162,500

Explanation

The predetermined rate is $180,000 ÷ 12,000 = $15 per direct labor hour. Applied overhead equals the rate times actual hours, or $15 × 13,000 = $195,000, which exceeds actual overhead and produces overapplied overhead.

Question 34Business

A company produces two products on the same equipment. Product A uses 3 machine hours per unit and Product B uses 1 machine hour per unit. If machine hours are the cost driver, which product should receive a larger share of overhead cost per unit?

  1. Both equally, because overhead is fixed
  2. Neither, because overhead cannot be traced to units
  3. Product A, because it consumes more of the cost driver Correct answer.
  4. Product B, because it has fewer machine hours

Explanation

Activity-based and driver-based allocation assign overhead in proportion to the resources consumed. A product requiring three times the machine hours of another should bear roughly three times the machine-related overhead per unit.

Question 35Business

A project requires an initial investment of $50,000 and generates equal annual cash inflows of $15,000 for five years. Which capital budgeting method determines the number of years until cumulative cash inflows equal the initial outlay without discounting?

  1. Net present value
  2. Profitability index
  3. Payback period Correct answer.
  4. Internal rate of return

Explanation

The payback period measures how long it takes cumulative undiscounted cash inflows to recover the initial investment. Here it is $50,000 ÷ $15,000, or about 3.33 years.

Question 36Business

A company's debt-to-equity ratio is 1.5, and it issues additional long-term bonds to repurchase shares. What is the immediate effect on the debt-to-equity ratio?

  1. It decreases
  2. It increases Correct answer.
  3. It stays the same
  4. It becomes negative

Explanation

Issuing bonds raises total liabilities while repurchasing shares reduces equity, so the numerator grows and the denominator shrinks. Both effects push the debt-to-equity ratio higher, increasing financial leverage.

Question 37Business

An investor buys 200 shares at $30 and sells them one year later at $36, receiving $1.50 per share in dividends. What is the total holding-period return percentage?

  1. 5%
  2. 30%
  3. 20%
  4. 25% Correct answer.

Explanation

The gain is $6 per share plus $1.50 in dividends, or $7.50 per share, on a $30 investment. Dividing $7.50 by $30 gives a 25% holding-period return.

Question 38Business

An investor wants steady current income and low risk of principal loss, prioritizing regular payments over growth. Which type of investment best matches these objectives?

  1. Commodity futures contracts
  2. Growth stocks of emerging companies
  3. Investment-grade corporate bonds Correct answer.
  4. Cryptocurrency holdings

Explanation

Investment-grade bonds pay scheduled interest and return principal at maturity, matching an income-focused, lower-risk objective. Equity growth stocks, futures, and digital assets offer higher potential returns with substantially greater volatility.

Question 39Business

A bank holds $1,000 in reserves against $10,000 in checkable deposits. If the required reserve ratio is 8%, what is the bank's excess reserve amount?

  1. $1,000
  2. $0
  3. $80
  4. $200 Correct answer.

Explanation

Required reserves are 8% × $10,000 = $800. Excess reserves equal actual reserves minus required reserves, or $1,000 − $800 = $200, which the bank may lend or invest.

Question 40Business

A firm sells a product whose demand is highly inelastic in the short run. If the firm raises its price slightly, what is the most likely effect on total revenue?

  1. Total revenue is unchanged because price and quantity offset exactly
  2. Total revenue falls to zero because buyers stop purchasing
  3. Total revenue rises because quantity demanded falls proportionally less than price Correct answer.
  4. Total revenue falls because quantity demanded drops sharply

Explanation

When demand is inelastic, the percentage change in quantity is smaller than the percentage change in price. A price increase therefore raises total revenue because the lost sales volume is proportionally smaller than the higher price per unit.

Question 41Business

A firm operates in a perfectly competitive market and its marginal cost exceeds marginal revenue at its current output. To maximize profit in the short run, the firm should:

  1. Shut down immediately regardless of price
  2. Reduce output until marginal cost equals marginal revenue Correct answer.
  3. Increase output to spread fixed costs over more units
  4. Raise its price above the market price

Explanation

Profit is maximized where marginal revenue equals marginal cost. When marginal cost exceeds marginal revenue, each additional unit loses money, so cutting output toward the intersection raises profit.

Question 42Business

A firm's operations generate $200,000 in cash, it spends $120,000 on equipment, and it pays $30,000 in dividends. What is its free cash flow to equity under this simplified calculation?

  1. $50,000 Correct answer.
  2. $20,000
  3. $170,000
  4. $80,000

Explanation

Free cash flow to equity is operating cash flow minus capital expenditures minus dividends paid, or $200,000 − $120,000 − $30,000 = $50,000. This is the cash available for reinvestment or debt reduction.

Question 43Business

A firm's return on equity is 15% and its return on assets is 10%. What does the difference primarily reflect?

  1. A higher gross profit margin than competitors
  2. Faster inventory turnover than the industry
  3. The use of debt financing, which magnifies returns to equity holders Correct answer.
  4. A lower effective tax rate than the prior year

Explanation

Return on equity exceeds return on assets when the firm uses leverage, because borrowed funds generate returns shared only among equity holders. The gap reflects financial leverage rather than operating efficiency or tax effects.

Question 44Business

A manager uses a decision tree to evaluate whether to launch a new product. Which element of the decision tree represents a point where the manager chooses among alternatives?

  1. A probability branch
  2. A decision node Correct answer.
  3. A terminal leaf
  4. A chance node

Explanation

Decision trees use squares for decision nodes, where a manager selects among controllable alternatives. Chance nodes, often circles, represent uncertain outcomes governed by probabilities.

Question 45Business

A firm's sales are highly seasonal, with most revenue in the fourth quarter. Which short-term financing strategy best matches this pattern?

  1. Maintain large idle cash balances year-round
  2. Issue 30-year bonds to fund seasonal inventory
  3. Finance seasonal inventory with permanent equity capital
  4. Use short-term credit that is repaid as seasonal inventory converts to cash Correct answer.

Explanation

Matching principle in working capital management pairs short-term, seasonal assets with short-term financing that can be retired when the seasonal buildup is sold. This reduces interest cost and avoids long-term commitments for temporary needs.

Question 46Business

A company's organizational structure groups employees by function, such as marketing, finance, and production. Which structure is described?

  1. Divisional structure
  2. Network structure
  3. Functional structure Correct answer.
  4. Matrix structure

Explanation

A functional structure organizes work by specialized function, promoting expertise and efficiency within each area. Divisional structures group by product or region, and matrix structures combine two reporting lines.

Question 47Business

A manager wants to motivate employees using expectancy theory. Which action most directly strengthens the expectancy component?

  1. Providing training and resources so employees believe effort will lead to performance Correct answer.
  2. Offering additional paid time off to all employees
  3. Increasing the size of the bonus tied to performance
  4. Clarifying that rewards will be distributed fairly

Explanation

Expectancy theory holds that motivation depends on expectancy, instrumentality, and valence. Expectancy is the belief that effort produces performance, so training and resources that build capability strengthen it directly.

Question 48Business

A company's advertising campaign highlights how its product solves a customer problem better than competing brands. Which element of the marketing mix is the campaign addressing?

  1. Promotion Correct answer.
  2. Place
  3. Product
  4. Price

Explanation

Promotion covers communication activities that inform and persuade customers, including advertising and positioning messages. Product, price, and place refer to the offering, its cost, and distribution respectively.

Question 49Business

A firm's marketing research shows that a competitor's new pricing strategy will likely reduce its market share. Which stage of the marketing research process does this represent?

  1. Defining the problem
  2. Designing the sampling plan
  3. Analyzing data and reporting findings Correct answer.
  4. Collecting primary data

Explanation

Once data are gathered, the researcher interprets them and draws conclusions that inform decisions. Predicting a competitive price effect from research results is an analytic conclusion, not problem definition or data collection.

Question 50Business

A firm is considering entering a foreign market and wants to limit its capital exposure while gaining local market knowledge. Which entry mode best fits these goals?

  1. Joint venture with a local partner Correct answer.
  2. Direct exporting with no local presence
  3. Wholly owned subsidiary
  4. Greenfield investment

Explanation

A joint venture shares investment and risk with a local partner and provides local knowledge, limiting capital exposure relative to full ownership. Wholly owned subsidiaries and greenfield investments require the most capital and control.