MBA Math Sample Exercise

Accounting: Balance Sheet Transactions

Moving well beyond generic GMAT aptitude questions, the MBA Math sample exercises allow prospective MBA students to self assess their proficiency with the quantitative building blocks of the MBA first year curriculum.

MBA focused, time efficient, and convenient, the MBA Math online course builds your quantitative skills. Furthermore, the MBA Math transcript provides a concise summary for admissions officers that you are up to speed.

Visit www.mbamath.com to learn more!

Exercise

Evaluate each of the following transactions in terms of their effect on assets, liabilities, and equity.

1. Buy $17,000 worth of manufacturing supplies on credit
2. Issue $90,000 in stock
3. Receive payment of $10,000 owed by a customer
4. Purchase equipment for $46,000 in cash

What is the net change in Total Assets?

Solution

Solution Commentary

(4:50)

Manual Solution

Remember the following:

Uses of funds = Sources of funds
Assets = Liabilities + Equity

Assets are uses of funds in the form of money, credit extended to customers, and stuff owned
Liabilities and equity are sources of funds
Liabilities are forms of borrowing from non-owners
Equity is funding from owners

We will evaluate the impact of each transaction on assets, liabilities, and equity.
Then we will answer the question by summing up the net change in Total Assets.

Description	Assets	=	Liabilities	+	Equity	Explanation
1. Buy supplies on credit	17,000	=	17,000	+	0	Physical assets increase and are offset by obligation to repay supplier
2. Issue stock	90,000	=	0	+	90,000	Cash asset increases and is offset by increase in funding equity from owners
3. Receive payment owed by customer	+10,000 -10,000	=	0	+	0	Transfer of assets from non-cash customer IOU (accounts receivable) to cash
4. Buy equipment for cash	+46,000 -46,000	=	0	+	0	Transfer of assets from cash to equipment
Totals	107,000	=	17,000	+	90,000

The net change in Total Assets is $107,000

Peter Regan teaches decision science courses at Dartmouth’s Tuck School and Duke’s Fuqua School. He also teaches pre-term quantitative skills courses at Tuck and Cornell’s Johnson School. He created the MBA Math self-paced, online pre-MBA quantitative skills course covering finance, accounting, economics, statistics, and spreadsheets.