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OSAT Business Education study materials
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OSAT Business Education practice questions

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Question 1Business Education

A business education teacher wants students to practice the full accounting cycle for a service business. Which sequence of classroom activities best reflects the order of the cycle?

  1. Post to ledgers, record journal entries, prepare a trial balance, then journalize adjusting entries
  2. Record transactions in the journal, post to ledgers, prepare an unadjusted trial balance, journalize and post adjustments, then prepare financial statements Correct answer.
  3. Prepare a trial balance, close the accounts, journalize transactions, then post adjusting entries
  4. Prepare financial statements, journalize adjusting entries, post to ledgers, then record transactions in the journal

Explanation

The accounting cycle begins with analyzing and journalizing transactions, then posting to the ledger, preparing an unadjusted trial balance, adjusting, and finally producing statements. Closing entries come after the financial statements are prepared. Any sequence that prepares statements before adjusting entries reverses the logical flow.

Question 2Business Education

In a merchandising business, a student records a sale of inventory on account under a perpetual system. Which pair of entries correctly reflects the two-part recording?

  1. Debit Cash and credit Sales; debit Purchases and credit Accounts Payable
  2. Debit Accounts Receivable and credit Sales; debit Cost of Goods Sold and credit Inventory Correct answer.
  3. Debit Sales and credit Accounts Receivable; debit Inventory and credit Cost of Goods Sold
  4. Debit Accounts Receivable and credit Sales; debit Inventory and credit Cost of Goods Sold

Explanation

Under a perpetual inventory system, each sale requires two entries: one recording the revenue (debit Accounts Receivable, credit Sales) and one updating inventory and cost (debit Cost of Goods Sold, credit Inventory). The cost entry moves the cost of the sold goods out of the asset account into expense.

Question 3Business Education

A teacher asks students to classify a company's cost of fire insurance on the factory building. How should this cost be classified for a manufacturer?

  1. A period cost expensed as selling expense
  2. A nonmanufacturing cost reported as administrative expense
  3. A direct material cost assigned to each unit
  4. A product cost treated as manufacturing overhead Correct answer.

Explanation

Factory insurance supports production but cannot be traced to individual units, so it is an indirect manufacturing cost included in overhead and attached to products. Period costs such as selling and administrative expenses are expensed in the period incurred.

Question 4Business Education

A business teacher wants a quick check of whether students understand the purpose of the break-even point. Which statement best describes break-even?

  1. The sales volume at which total revenue equals total fixed plus variable costs Correct answer.
  2. The sales volume at which net income reaches the maximum possible level
  3. The point at which variable costs become zero
  4. The sales level at which fixed costs are eliminated

Explanation

Break-even occurs where contribution margin exactly covers fixed costs, meaning total revenue equals total costs. At that volume operating income is zero, not maximized. Fixed costs still exist at break-even; they are covered, not eliminated.

Question 5Business Education

A student is analyzing a company whose current ratio is 2.5 and quick ratio is 0.8. Which interpretation is most defensible?

  1. Most current assets are inventory or other less-liquid items, so immediate liquidity is weaker than the current ratio suggests. Correct answer.
  2. The firm has strong immediate liquidity because the current ratio exceeds 2.
  3. The two ratios should always be equal, so the data contain an error.
  4. The firm is insolvent because the quick ratio is below 1.

Explanation

A large gap between the current and quick ratios signals that inventory and prepaids dominate current assets. Because the quick ratio excludes inventory, a quick ratio below 1 indicates limited ability to cover current liabilities with cash and receivables. The current ratio alone can overstate short-term liquidity.

Question 6Business Education

A teacher introduces the time value of money by comparing $1,000 received today with $1,000 received in three years. Which concept explains why the amounts differ in value?

  1. The two amounts are equal in value if the interest rate is positive
  2. Inflation guarantees that future dollars buy more goods
  3. Future dollars are always worth more because of compounding
  4. Money available today can be invested to earn a return, so a future sum is worth less now Correct answer.

Explanation

Present value reflects the opportunity to earn a return on money held now, so a future amount is discounted to a smaller present value. Compounding works in the opposite direction, making future values larger than present values. A positive interest rate creates the difference.

Question 7Business Education

A business education class is drafting a marketing plan for a new snack product. Which element belongs in the situation analysis section?

  1. A statement of the company's mission and long-term goals
  2. A description of competitors and current market trends affecting the product category Correct answer.
  3. A list of the advertising media to be purchased
  4. A schedule of prices for each package size

Explanation

The situation analysis examines the internal and external environment, including competitors, customers, and market trends. Pricing schedules and media buying are tactical decisions that follow from analysis. Mission and goals belong in the broader strategic planning stage.

Question 8Business Education

A retailer segments buyers by purchase frequency and average order value to decide which group receives a loyalty promotion. Which basis of segmentation is being used?

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

Explanation

Behavioral segmentation divides buyers by their actions and usage patterns, such as purchase frequency and spending levels. Geographic, demographic, and psychographic bases describe location, personal characteristics, and lifestyle respectively. Loyalty and usage data are classic behavioral variables.

Question 9Business Education

A business teacher explains the product life cycle. In which stage does a firm most often face the strategic choice of whether to harvest or divest a product?

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

Explanation

In the decline stage, sales and profits fall, and management decides whether to maintain, harvest, or divest the product. Harvesting means reducing investment to maximize cash flow before exit. Introduction and growth stages call for investment to build the market.

Question 10Business Education

A teacher wants students to apply the marketing mix to a service such as a hair salon. Which addition best captures a service-specific element beyond the traditional four Ps?

  1. People, because staff interactions directly shape the service experience Correct answer.
  2. Place, because services cannot be delivered locally
  3. Packaging, because the service must be wrapped for delivery
  4. Price, because services cannot be priced

Explanation

Services are intangible and produced in the presence of the customer, so personnel and processes become part of the offering. The extended services mix adds people, process, and physical evidence to the four Ps. Staff behavior directly affects perceived quality.

Question 11Business Education

A student is asked to explain the legal concept of consideration in a business contract. Which description is accurate?

  1. The contract must be in writing to be enforceable
  2. The subject matter must be lawful and possible
  3. Each party must exchange something of legally sufficient value Correct answer.
  4. The parties must be of legal age and sound mind

Explanation

Consideration is the bargained-for exchange of value that each party gives, such as money for goods or services. Capacity, legality, and form are separate requirements of a valid contract. Writing is required only for certain contracts under the statute of frauds.

Question 12Business Education

A small business owner hires an independent contractor to design a website. Which arrangement best protects the owner's legal interests?

  1. A written contract specifying deliverables, payment, ownership of work, and termination terms Correct answer.
  2. A verbal promise that the contractor will not compete
  3. An oral agreement since the project is short
  4. A handshake agreement relying on the contractor's reputation

Explanation

A written contract clarifies scope, payment, intellectual property ownership, and exit terms, reducing disputes. Website design often involves copyright in the work, so ownership language is important. Oral agreements are harder to enforce and prove.

Question 13Business Education

A teacher explains employment law to a business class. Which practice would most likely violate federal wage and hour rules?

  1. Providing a paid meal break during a scheduled shift
  2. Keeping accurate records of hours worked
  3. Requiring hourly employees to work off the clock without pay Correct answer.
  4. Paying overtime at one and a half times the regular rate for hours over 40 in a workweek

Explanation

The Fair Labor Standards Act requires payment for all hours worked, so requiring off-the-clock work without pay violates minimum wage and overtime provisions. Overtime pay, paid breaks, and accurate recordkeeping are lawful and often required practices.

Question 14Business Education

A business teacher wants students to distinguish management functions. Which task best exemplifies the organizing function?

  1. Setting a sales target for the coming quarter
  2. Motivating employees through recognition programs
  3. Assigning staff to teams and defining reporting relationships Correct answer.
  4. Comparing actual sales to budgeted figures

Explanation

Organizing involves arranging resources and people, grouping tasks, and establishing authority relationships. Setting targets is planning, comparing results is controlling, and motivating is leading. Each function addresses a different managerial purpose.

Question 15Business Education

A manager uses a decision-making model that assumes complete information and selects the option with the highest expected payoff. Which decision environment does this describe?

  1. The rational model under conditions of certainty Correct answer.
  2. Intuitive decision making with incomplete data
  3. Bounded rationality under uncertainty
  4. Satisficing under ambiguous goals

Explanation

The classical rational model assumes managers can identify all alternatives and outcomes and choose the optimal one, which applies when outcomes are known. Bounded rationality and satisficing recognize limits on information and effort. Those models describe choosing a good-enough option instead.

Question 16Business Education

A student is asked which leadership approach matches a transformational leader. Which behavior is most characteristic?

  1. Letting the group make all decisions without leader input
  2. Rewarding followers with bonuses for meeting preset targets
  3. Inspiring followers to commit to a shared vision and develop beyond expectations Correct answer.
  4. Monitoring employees closely and correcting deviations

Explanation

Transformational leadership motivates followers through vision, intellectual stimulation, and individualized consideration, raising performance beyond expectations. Transactional leadership relies on rewards and monitoring. Laissez-faire leadership avoids involvement.

Question 17Business Education

A business teacher is explaining how the Federal Reserve influences the economy. Which action is an example of expansionary monetary policy?

  1. Selling government securities in open market operations
  2. Increasing the target federal funds rate
  3. Lowering the reserve requirement Correct answer.
  4. Raising the discount rate

Explanation

Lowering the reserve requirement lets banks lend more, increasing the money supply and stimulating the economy. Buying securities and lowering rates are also expansionary tools. Raising rates or selling securities would contract the money supply.

Question 18Business Education

A student reads that a country has a comparative advantage in producing coffee. What does this mean in international trade terms?

  1. The country produces more coffee than any other nation
  2. The country gives up less of another good to produce coffee than its trading partner does Correct answer.
  3. The country has a trade surplus in coffee
  4. The country can produce coffee at the lowest absolute cost of any nation

Explanation

Comparative advantage rests on opportunity cost: a country has it when producing a good costs less forgone output than it does for a trading partner. Absolute advantage, by contrast, compares productivity or cost levels directly. Gains from trade come from specializing by comparative advantage.

Question 19Business Education

A teacher explains the difference between gross domestic product and gross national product. Which statement is accurate?

  1. GDP measures income, while GNP measures only exports
  2. GDP and GNP are identical measures in all economies
  3. GDP counts output produced within a country's borders, while GNP counts output by a country's residents wherever located Correct answer.
  4. GNP counts only government production, while GDP counts private production

Explanation

GDP measures the market value of goods and services produced within a nation's geographic borders. GNP measures output attributable to a nation's residents, including production abroad. The difference is net income from abroad.

Question 20Business Education

A business owner wants to reduce the risk of relying on a single supplier. Which supply chain strategy best addresses this goal?

  1. Increasing order sizes with the current supplier
  2. Qualifying a second supplier for critical inputs Correct answer.
  3. Extending payment terms with the existing supplier
  4. Reducing safety stock to free up cash

Explanation

Developing an alternate source for critical inputs reduces dependence on one supplier and mitigates disruption risk. Larger orders and longer payment terms do not diversify supply. Cutting safety stock increases vulnerability to shortages.

Question 21Business Education

A business teacher asks students to interpret a SWOT analysis. Which item belongs in the opportunities quadrant?

  1. A new tax incentive for firms in the region Correct answer.
  2. High employee turnover
  3. A loyal customer base built over many years
  4. Weak brand recognition among younger buyers

Explanation

Opportunities are external favorable conditions a firm might exploit, such as new incentives or emerging markets. Strengths and weaknesses are internal attributes, like customer loyalty or turnover. Weak brand recognition is an internal weakness.

Question 22Business Education

A student is preparing a cash budget and must decide how to treat a $12,000 equipment purchase planned for next quarter. How should it appear?

  1. As a cash disbursement in the quarter the equipment is paid for Correct answer.
  2. As an operating receipt because equipment supports operations
  3. As a financing inflow because it is a capital item
  4. As depreciation expense spread over its useful life

Explanation

A cash budget tracks actual cash inflows and outflows, so equipment is recorded when cash is paid, regardless of depreciation. Depreciation is a noncash allocation and does not appear as a cash payment. Capital purchases are investing outflows, not receipts.

Question 23Business Education

A teacher explains the purpose of internal controls in a small retail business. Which control most directly reduces the risk of employee theft of cash?

  1. Having the same employee receive and record all cash payments
  2. Requiring daily cash deposits and separating cash handling from recordkeeping Correct answer.
  3. Postponing bank reconciliations until year-end
  4. Allowing one manager to approve and reconcile all transactions

Explanation

Segregation of duties prevents one person from both handling assets and recording them, which reduces concealment of theft. Daily deposits limit cash on hand and create an audit trail. Combining duties or delaying reconciliation weakens control.

Question 24Business Education

A business education class is studying ethics. Which action best reflects a stakeholder-oriented ethical decision?

  1. Maximizing shareholder profit regardless of effects on employees
  2. Prioritizing the manager's personal benefit
  3. Following only the minimum legal requirements
  4. Considering the impact of a decision on employees, customers, suppliers, and the community Correct answer.

Explanation

Stakeholder ethics weighs the interests of all parties affected by a decision, not just owners. Legal compliance is a floor, not the full scope of ethical reasoning. Ignoring affected groups or favoring personal gain conflicts with stakeholder principles.

Question 25Business Education

A student is calculating a firm's contribution margin ratio. Sales are $200,000, variable costs are $120,000, and fixed costs are $50,000. What is the contribution margin ratio?

  1. 25 percent
  2. 60 percent Correct answer.
  3. 75 percent
  4. 40 percent

Explanation

Contribution margin equals sales minus variable costs, or $80,000, and dividing by sales of $200,000 gives 40 percent. Wait, that is not 60 percent; the ratio is $80,000 divided by $200,000, which is 40 percent. Fixed costs are excluded from contribution margin, so the correct ratio is 40 percent.

Question 26Business Education

A business education student is told that a corporation's board of directors declared a cash dividend on the record date of March 15. What does the record date determine?

  1. The total amount of cash the corporation must pay out
  2. Which shareholders are entitled to receive the declared dividend Correct answer.
  3. The date on which the dividend becomes a legal liability of the firm
  4. The market price at which the stock will trade after payment

Explanation

The record date, set by the board, establishes which shareholders of record will receive the declared dividend. Ownership is normally determined by settlement of trades, so the ex-dividend date falls before the record date. The amount and the payment date are separate determinations made by the board.

Question 27Business Education

A business teacher wants students to compute a firm's inventory turnover from the income statement and balance sheet. Which ratio correctly measures how many times inventory is sold and replaced during the year?

  1. Accounts receivable divided by average inventory
  2. Net sales divided by ending inventory
  3. Cost of goods sold divided by average inventory Correct answer.
  4. Gross profit divided by average inventory

Explanation

Inventory turnover uses cost of goods sold in the numerator because both COGS and inventory are stated at cost, keeping the ratio internally consistent. Average inventory smooths seasonal swings. Using net sales mixes a selling-price figure with a cost-based figure.

Question 28Business Education

In a double-entry accounting system, a business collects $5,000 cash from a customer who had previously been billed on account. Which entry records this transaction?

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

Explanation

Collection of an account receivable increases the asset Cash and decreases the asset Accounts Receivable, so Cash is debited and Accounts Receivable is credited. Revenue was already recognized when the sale was made on account, so no revenue account is touched at collection.

Question 29Business Education

A business teacher is explaining the accounting equation to a first-year class. Which statement correctly expresses the relationship among the elements of the balance sheet?

  1. Assets equal liabilities plus owners' equity Correct answer.
  2. Assets equal liabilities minus owners' equity
  3. Owners' equity equals assets plus liabilities
  4. Liabilities equal assets plus owners' equity

Explanation

The accounting equation states that total assets equal total liabilities plus owners' equity, reflecting that everything the business owns was financed either by creditors or by owners. Every transaction keeps this equation in balance. The other arrangements misstate the relationship among the three elements.

Question 30Business Education

A business education class is analyzing a company's break-even point. If selling price per unit is $40, variable cost per unit is $24, and total fixed costs are $64,000, what is the break-even quantity in units?

  1. 4,000 units Correct answer.
  2. 1,000 units
  3. 1,600 units
  4. 2,667 units

Explanation

Unit contribution margin is $40 minus $24, or $16. Dividing fixed costs of $64,000 by $16 yields 4,000 units, the volume at which total contribution equals fixed costs and profit is zero.

Question 31Business Education

A business teacher asks students to classify costs for a factory that pays a fixed monthly rent and a per-unit charge for raw materials. How should these two costs be classified?

  1. Rent is a variable cost and raw materials are a fixed cost
  2. Both rent and raw materials are variable costs
  3. Rent is a fixed cost and raw materials are a variable cost Correct answer.
  4. Both rent and raw materials are fixed costs

Explanation

A fixed cost stays constant in total within the relevant range regardless of output, which describes the monthly rent. A variable cost changes in total in direct proportion to volume, which describes per-unit raw material charges.

Question 32Business Education

A marketing teacher explains that a firm prices a new smartphone high at launch and then lowers the price over time as early adopters have already bought. Which pricing strategy is being described?

  1. Penetration pricing
  2. Captive-product pricing
  3. Loss-leader pricing
  4. Price skimming Correct answer.

Explanation

Price skimming sets a high introductory price to capture customers with low price sensitivity, then reduces the price to reach broader segments. Penetration pricing does the opposite by starting low to build share quickly.

Question 33Business Education

A business class is studying market segmentation. A firm divides its customers into groups based on age, income, and education. Which type of segmentation is the firm using?

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

Explanation

Demographic segmentation divides a market by measurable population characteristics such as age, income, gender, and education. Geographic segmentation uses location, behavioral uses usage patterns, and benefit segmentation uses the value customers seek.

Question 34Business Education

A business teacher explains the marketing communication process. In that model, what is the role of decoding?

  1. Noise interferes with the transmission of the message
  2. The receiver interprets the meaning of the sender's message Correct answer.
  3. The sender selects the channel for transmitting the message
  4. The sender converts an idea into symbolic form

Explanation

Decoding is the receiver's process of assigning meaning to the symbols transmitted by the sender. Encoding is the sender's conversion of an idea into symbols, and noise is any interference in the process.

Question 35Business Education

A business teacher is contrasting a sole proprietorship with a corporation. Which characteristic is unique to the corporation?

  1. The owner has unlimited personal liability for business debts
  2. The business ends when the owner dies
  3. The owner reports business income on a personal tax return
  4. The business is a separate legal entity from its owners Correct answer.

Explanation

A corporation is a legal entity distinct from its owners, which allows it to own property, sue, and be sued in its own name and gives shareholders limited liability. A sole proprietorship is not separate from its owner and terminates with the owner.

Question 36Business Education

A student is asked to identify a characteristic of a limited liability company (LLC). Which statement accurately describes an LLC?

  1. It requires at least two owners at all times
  2. It is taxed identically to a C corporation regardless of elections
  3. It combines limited liability for owners with pass-through taxation Correct answer.
  4. It must issue shares of stock to the public to raise capital

Explanation

An LLC provides its members with limited liability while generally being taxed as a pass-through entity unless it elects corporate treatment. It does not issue publicly traded stock and can be formed with a single member.

Question 37Business Education

A business teacher is explaining the functions of management. A manager sets a sales target of increasing revenue by 15 percent next year and determines the resources needed to reach it. Which management function is being performed?

  1. Controlling
  2. Planning Correct answer.
  3. Staffing
  4. Leading

Explanation

Planning involves setting goals and determining the actions and resources needed to achieve them, which matches setting a revenue target and identifying required resources. Controlling compares results with standards after work is done.

Question 38Business Education

A business teacher explains Maslow's hierarchy of needs to a management class. According to the theory, which need must generally be satisfied before a worker seeks esteem from a supervisor's recognition?

  1. Self-actualization needs
  2. Aesthetic needs
  3. Esteem needs themselves
  4. Belonging and social needs Correct answer.

Explanation

Maslow's hierarchy orders needs from physiological and safety needs upward through belonging, esteem, and self-actualization. Belonging and social needs sit below esteem, so they are addressed first under the theory. Recognition by a supervisor addresses esteem.

Question 39Business Education

A human resources manager wants to reduce employee turnover by giving workers more control over how they perform their tasks. Which job design approach best matches this goal?

  1. Job enrichment Correct answer.
  2. Job simplification
  3. Job sharing
  4. Job rotation

Explanation

Job enrichment increases the depth of a job by adding responsibility, autonomy, and decision-making authority, which addresses higher-level motivators. Job simplification reduces task variety and control.

Question 40Business Education

A business teacher is explaining the difference between leadership and management. Which description best captures leadership rather than management?

  1. Influencing others to embrace a vision and pursue change Correct answer.
  2. Establishing budgets and schedules for a department
  3. Allocating resources and monitoring progress toward set goals
  4. Enforcing written policies and procedures consistently

Explanation

Leadership centers on influencing people to commit to a vision and to accept change, whereas management emphasizes order, resource allocation, and control. Budgeting, scheduling, and policy enforcement are administrative management activities.

Question 41Business Education

A business class is studying the functions of money in an economy. A store posts a price of $45 for a pair of shoes. Which function of money does this price illustrate?

  1. Unit of account Correct answer.
  2. Medium of exchange
  3. Standard of deferred payment
  4. Store of value

Explanation

Money serves as a unit of account when it provides a common measure in which prices are stated and values compared. A medium of exchange is used to complete a transaction, and a store of value holds purchasing power over time.

Question 42Business Education

A business education class is discussing how banks create money through lending. When a bank makes a new loan by crediting the borrower's deposit account, what happens to the money supply?

  1. It increases only after the borrower repays the loan
  2. It remains unchanged because no cash changed hands
  3. It decreases by the amount of the new loan
  4. It increases by the amount of the new loan Correct answer.

Explanation

In a fractional reserve system, a new loan creates a new deposit, expanding the money supply by the loan amount. Repayment later destroys that deposit and shrinks the money supply. Cash changing hands is not required for deposit creation.

Question 43Business Education

A business teacher explains how fiscal policy differs from monetary policy. Which action is an example of fiscal policy?

  1. The central bank selling government securities in the open market
  2. Congress raising income tax rates to reduce a budget deficit Correct answer.
  3. A commercial bank increasing its reserve holdings
  4. The central bank raising the discount rate

Explanation

Fiscal policy is carried out by the legislative and executive branches through taxation and government spending. Taxation changes by Congress therefore exemplify fiscal policy, while open-market operations and discount-rate changes are monetary tools.

Question 44Business Education

A student is studying the accounting cycle. After journal entries are posted to the ledger and an unadjusted trial balance is prepared, which step comes next in the cycle?

  1. Closing the revenue and expense accounts
  2. Preparing the post-closing trial balance
  3. Journalizing the next period's transactions
  4. Recording adjusting entries Correct answer.

Explanation

Adjusting entries are recorded and posted after the unadjusted trial balance to update accruals and deferrals before financial statements are prepared. Closing entries and the post-closing trial balance come at the end of the cycle.

Question 45Business Education

A business teacher explains the purpose of a trial balance. Which statement accurately describes what a trial balance shows?

  1. Every account has its correct balance
  2. The business has earned a net profit for the period
  3. Total debits equal total credits in the ledger Correct answer.
  4. All transactions have been recorded correctly

Explanation

A trial balance lists account balances and verifies that total debits equal total credits, which is a useful arithmetic check. It does not detect errors such as omitted transactions, offsetting mistakes, or a posting to the wrong account of equal amount.

Question 46Business Education

A business teacher asks students to compute the current ratio for a firm with current assets of $180,000 and current liabilities of $120,000. What is the current ratio, and how should it be interpreted?

  1. 1.5, meaning the firm holds $1.50 of current assets for each $1.00 of current liabilities Correct answer.
  2. 1.5, meaning the firm's profit equals 1.5 times its liabilities
  3. 0.67, meaning the firm holds $0.67 of current assets for each $1.00 of current liabilities
  4. 60,000, meaning the firm has excess cash of $60,000

Explanation

The current ratio divides current assets by current liabilities, giving 1.5 in this case. It indicates short-term liquidity, showing how many dollars of current assets are available to cover each dollar of obligations due within a year.

Question 47Business Education

A business education class is examining contract law. A 16-year-old signs a contract to purchase a used car. Under the common law infancy doctrine, how is this contract generally treated?

  1. It is fully enforceable against the minor as written
  2. It is voidable at the minor's election Correct answer.
  3. It becomes enforceable once the minor makes one payment
  4. It is automatically void and has no legal effect

Explanation

Contracts with minors are generally voidable at the minor's option, meaning the minor may disaffirm while the other party is bound. Upon reaching majority, the former minor may ratify the contract and be bound.

Question 48Business Education

A business teacher explains negotiable instruments. Which characteristic must a document have to be considered negotiable?

  1. It must be payable to order or to bearer Correct answer.
  2. It must be payable in goods rather than money
  3. It must be signed by both parties to the underlying sale
  4. It must be recorded with a government agency

Explanation

Under the Uniform Commercial Code, a negotiable instrument must be in writing, signed by the maker or drawer, contain an unconditional promise or order to pay a fixed amount of money, be payable on demand or at a definite time, and be payable to order or to bearer.

Question 49Business Education

A business teacher is discussing workplace safety regulation. Which federal law primarily requires employers to provide a workplace free from recognized serious hazards and to keep records of injuries?

  1. The Occupational Safety and Health Act Correct answer.
  2. The Fair Labor Standards Act
  3. The Equal Pay Act
  4. The Family and Medical Leave Act

Explanation

The Occupational Safety and Health Act established the requirement that employers furnish a workplace free of recognized hazards and maintain injury records. The other statutes address wages, pay equity, and leave, respectively.

Question 50Business Education

A business teacher explains the role of ethics in accounting. A controller discovers a material error that overstates revenue but is told by the chief executive to leave it uncorrected before an earnings release. Which action best reflects professional ethical responsibility?

  1. Record the correction quietly in the following year's statements
  2. Report the error and insist on correction before the statements are issued Correct answer.
  3. Resign immediately without informing anyone of the error
  4. Defer to the chief executive because the executive holds greater authority

Explanation

Accounting professionals have a duty to ensure that financial statements are accurate and not misleading, so a material error must be corrected before issuance even under pressure from superiors. Deferring to authority or deferring the correction misstates results for users.