BOMI Budgeting and Accounting Exam Study Guide: Questions and Answers, Exams of Accounting

Download BOMI Budgeting and Accounting Exam Study Guide: Questions and Answers and more Exams Accounting in PDF only on Docsity!

BOMI- Budgeting and Accounting Exam Study

Guide Questions with 100% Correct Answers |

Latest Version 2024/ 2025 | Verified

Which key components make up the bookkeeping process? (2) - ✔✔recording and classifying transactions is known as bookkeeping. Describe the roles filled by a accountant (3) - ✔✔Accounting is a system of summarizing, interpreting, and communicating financial data. What are the primary functions associated with accounting? (4) - ✔✔Accounting is the next step in the process. Accounting is the system of summarizing, interpreting, and communicating financial data. Specify functions incorporated in the budgeting process. (4) - ✔✔Budgeting is the ongoing process of coordinating resources and expenditures. Through this process, a plan is created with research and data as the foundation. The budget reflects the priorities of the business and the resources needed to accomplish them. - ✔✔ Describe the accounting cycle types most common to commercial real estate management business (5) - ✔✔revenue cycle and the expenditure cycle What are the three summary account types? (9) - ✔✔assets, liabilities, and owner's equity—with each other as they increase and decrease with debits and credits. On the balance sheet, assets, liabilities, and owner's equity show the current status of the finances of the business or the building. - ✔✔ How are debits and credits applied to fundamental accounting equation? (11-12) - ✔✔liabilities and owner's equity normally have a credit balance a credit entry will increase the liability or owner's equity and a debit entry will decrease the liability or owner's equity

Explain accounting control strategies as they are used in real estate. (22) - ✔✔control strategies place to detect fraud or theft but are primarily put in place to avoid human error. strategies to avoid missed cash collection, or conversely excessive outflows that deplete an owners cash. These include, collections, costs controls Scenario - Chapter 1. Harold, an experienced finances manager for Beach Properties, hired Janet and is reviewing the various aspects of budgeting and accounting that she will need to understand and perform. - ✔✔Although she majored in finance at the local college, she lacks real world experience. As Harold works with her over the next few weeks, he will seek to gauge her level of understanding of budgeting and accounting fundamentals. He will also have her perform some basic tasks. To the degree that she succeeds, she will move on to more important and complicated projects. To the degree that she fails, Harold will provide additional training and support. - ✔✔ "Janet, your main job function for the next few months will be to record and classify transactions" says Harold. "In other words, you will be performing the process of..Blank.. a. accounting b. bookkeeping c. budgeting d. financing - ✔✔b. bookkeeping To the degree you are able to assume the role of accountant, Harold informs Janet, you'll engage in many more functions. However you will not be responsible for ....Blank ... Financial data - ✔✔B. memorizing If Janet performs an accounting function, she will.. blank...financial data. a. classify b. identify c. interpret d. record - ✔✔c. interpret remember Janet, that when we create our budget, we make a plan for the financing expenditures in the ...Blank..., says Harold - ✔✔d. next year

At lunch, Janet tells a friend that some of the job functions she will be performing include acquiring property, paying for it, and reporting on what is acquired and paid for. "Oh," her friend correctly notes, "then you'll be involved in the. .. BLANK..cycle of accounting." a. asset b. control c. revenue d. expenditure - ✔✔d. expenditure When Janet "balances the books" (or the summary accounts), she will basically be dealing with: a. assets, liabilities, and owner's equity. b. tax planning, revenues, and liabilities. c. liabilities, budgets, and owner's equity. d. owner's equity, capital, and tax planning. - ✔✔a. assets, liabilities, and owner's equity Janet," asks Harold, "if the company takes out a loan to make capital purchases, how would you record this?" To be correct, Janet should record the money received as a in Assets and as a in Liabilities. a. debit; debit b. debit; credit c. credit; debit d. credit; credit - ✔✔b. debit; credit Day after day, Janet records debits and credits for each entry to the balance sheet. This pro- cess is referred to as accounting. a. single-pass b. double-pass c. single-entry d. double-entry - ✔✔d. double-entry

For now, Harold has Janet prepare financial reports on a(n) basis, as it is the most basic method. a. accrual b. cash c. modified accrual d. modified cash - ✔✔b. cash Harold will soon be introducing Janet to accounting, or internal, controls that maximize cash income and minimize cash outflows. In particular, she will have to learn how to help the company avoid the most common error in properly administering tenant leases, which is: - ✔✔a. offering lease rates at below- market value. b. not using smartphone apps for lease payments. c. overlooking charges that are properly billable to the tenant. d. delaying the filing of annual forms with the proper governmental authorities. c. overlooking charges that are properly billable to the tenant. - ✔✔ Chapter 2 - ✔✔Chapter 2 In what practical ways do building professionals use records? ( 2 - 3_) - ✔✔accurate data is what allows stakeholders to take raw data and convert it into useful information from which final decisions can be made. these records are required for compliance with tax and legal requirements Explain the practice of checks and balances. (4) - ✔✔procedures put in place to ensure to different individuals perform different roles and functions help ensure checks and balances. those who authorize payments, should not be the same people who issue checks or mail them Describe the purpose of a chart of accounts , as well as its components. (8-9) - ✔✔the chart of accounts is the list of line items or categories that classifies accounts. charts of accounts are customized to fit the purposes of the business , and accounts are listed by function

What are the advantages to using a purchase order? (7) - ✔✔1. clearly outline good and services being provided. 2. outline the general terms of conditions of the purchase. 3.track purchases in chronological order. 4. limit access.

5. centralize purchasing to enable analysis for preferred supplies or negotiated preferred rates. 6. consolidate orders and discounts. 7. validate accounts 8. record accumulation of inventory - ✔✔ What items are included in the tenant file? (11) - ✔✔the tenant file houses the most current correspondence, leases and other documents. a copy of the lease , lease abstract, rent roll, lease amendments, floor plans, keying information, security deposits, insurance information or anything related to the tenant which elements are typically tracked with the use of a tickler system (14) - ✔✔tickler system is a system that reminds them of important deadlines and filing dates. Lease changes, billing info, dues dates, corporate reporting dates , accounting cutoff dates all maybe monitored by tickler system identify reports common in the commercial real estate industry that aid building professionals in making decisions about use of space, funds, and interactions with tenants (15-16) - ✔✔Vacancy, delinquency and rent roll are all import reports that help building professionals make decisions What is the purpose of the audit trail? (16) - ✔✔is to leave a record that auditors can verify What specific information do these reports provide to decision makers? (15-16) - ✔✔information about available funds, vacant space , churn rate, information for new tenants, potential tenants and effects on operating budgets due to a increase or loss of rent Scenario - Chapter 2. Having been audited in the past, Clarkson Real Estate does not want to repeat that experience. Senior management decides to hire an experienced finance manager to clean up operations, require and maintain proper record-keeping procedures, - ✔✔and ensure full compliance with laws and GAAP. Zelda has enjoyed the reputation of being such a person. Clarkson was able to hire her by making her a generous offer. She has accepted and looks forward to bringing everything up to standard. Zelda calls her staff together for their first meeting. She correctly emphasizes that, first and

. If Zelda uses the BOMA Chart of Accounts, she should understand that the level that reflects the functional categories of building operations is the ..blank..level. - ✔✔a. first b. second c. third d. fourth a. first - ✔✔ Bob, who works in the finance office, is reviewing the tenant files to see what they contain. While he expects the files to contain copies of leases and commencement letters, he asks Zelda if the files should contain floor plans, as well as information on keys and locks. Zelda's correct response would be: - ✔✔keys and locks. Zelda's correct response would be: a. no to both. b. no to the first, but yes to the second. c. yes to the first, but no to the second. d. yes to both. d. yes to both. - ✔✔ Clarkson will be agreeing to Zelda's request for a tickler system to help ensure that record-keeping responsibilities are met. This system typically monitors the due dates for all of the following except: - ✔✔a. property taxes. b. lighting bills. c. nonroutine bills. d. insurance. b. lighting bills. - ✔✔ Zelda asks for, and receives, the report that contains the listing of all current tenants in the building along with both financial and physical information. This type of report is the: - ✔✔a. vacancy report.

b. delinquency report. c. rent roll. d. occupancy roll. c. rent roll. - ✔✔ Given the past disarray of Clarkson's records, Zelda is doing her best to prepare for the inevitable audit. The audit trail that she is attempting to construct leaves a record that blank _can verify. - ✔✔a. auditors b. managers c. law enforcement d. professional groups a. auditors - ✔✔ Chapter 3 - ✔✔Chapter 3 What is the primary function of a lease? - ✔✔to protect the interests of both parties , the landlord and the tenant. What are the different types of gross leases - ✔✔a gross lease- the tenant pays only the base rent , without any other additional rent or operating expenses a modified gross lease is where the tenants agrees to pay for building expenses over a pre-established amount What is the difference between net and triple net lease? - ✔✔A single net lease requires the tenant to pay only the property taxes in addition to rent. A double net lease, the tenant pays the property taxes and insurance premiums. A triple net lease, net-net-net lease, requires the tenant to pay rent plus all three additional expenses

works carefully with all parties before the lease is signed to ensure that everyone is satisfied and understands his or her respective rights and obligations. Regardless of the amount of experience Miguel might have, the law assumes that as a prop- erty manager, he is a..BLANK..and is therefore held to a standard ..BLANK.. than the building's tenants. - ✔✔a. knowledgeable party; lower b. knowledgeable party; higher c. non-knowledgeable party; lower d. non-knowledgeable party; higher b. knowledgeable party; higher - ✔✔ As he has worked with tenants (both current and prospective) over the years, Miguel continually reminds them of the main function of a lease. The lease's main function is to protect the interests of the:

• ✔✔a. bank and the landlord. b. landlord and the tenant. c. government and the bank. d. tenant and the government. b. landlord and the tenant. - ✔✔ One prospective tenant is starting a new business and does not anticipate much cash flow in the first few years. As a result, the tenant requests the type of lease that ensures the land- lord pays for all expenses of property operations. - ✔✔This tenant wants a ..blank..lease. a. net b. gross c. seminet d. semigross

b. gross - ✔✔ Miguel reviews the proposed lease of another prospective tenant who will pay base rent to the landlord, as well as property operating expenses incurred by the landlord. However, the tenant will pay separately for property taxes. - ✔✔This best describes a(n) ..blank..lease. a. single-net b. double-net c. triple-net d. absolute net a. single-net - ✔✔ Miguel has a tenant who paid rent three days after the due date. To determine whether or not additional charges should be assessed against this tenant because of his tardiness, which of the following common significant lease clauses should - ✔✔Miguel consult? a. holdover b. option to renew c. late charges d. security deposit c. late charges - ✔✔ What are examples of common billable expenses on a lease? (pages 4 - 5 to 4 - 8) - ✔✔real property taxes, operating expenses, common area maintenance charges, electricity, A prospective tenant for the vacant third floor office space in Miguel's building is a branch location of a national chain of insurance agencies. Since Miguel is unclear if the corporate office for the chain will pay rent or the branch leadership, - ✔✔it will be necessary to the name of the lessee if the prospective tenant elects to rent in the building. a. omit

b. stacking plan. c. stepped rent report. d. tenant profile. b. stacking plan. - ✔✔ Chapter 4 - ✔✔Chapter 4 Explain the methods for abstracting a lease? - ✔✔1. the first page or two is refereed to as business points, and has important dates and all rental payments , including changes and increases. the second way is the lease is abstracted by What are two categories of rent? (page 4-3) - ✔✔Base rent provides a return on invested capital and includes scheduled rent increases ,sometimes referred to as rent steps or stepped rent, over the lease term. Additional rent and/ or supplemental charges allow the owner to recapture increases in operating expenses from the tenant. - ✔✔ How is rent viewed from a legal perspective? (page 4 - 3) - ✔✔The courts often require the term rent to describe all of these monies collected by a landlord. Other income is still considered rent from a legal perspective, but is actually the amounts of money the landlord spends on property expenses and the agreement in the lease to recover those expenses. - ✔✔ What are the categories of escalatable costs? (pages 4 - 11 to 4 - 13) - ✔✔1. expense vs capital

2. operating (recoverable) versus non operating ( non recoverable )
3. indirect versus direct

What are methods for reporting escalatable costs? (page 4 - 14) - ✔✔to review the expense amounts to ensure that each category contains a full 12 months of activity. Explain two different methods for assessing modified gross lease rent increases. (page 4-9) - ✔✔base year- expenses based on the year , or any other year of occupancy. base amount- base amount is a set dollar amount that is established, also called a expense stop. in this case tenant pays only their portion, called pro rata share How are CPI increases determined? (page 4 - 20) - ✔✔the CPI is determined by comparing the anniversary CPI to the base CPI, and the difference is quantified as a percentage and then applied to each tenants negotiated fraction of that percentage Describe the benefits of percentage rent. (page 4 - 21) - ✔✔if sales of the retail tenant increase above agreed level, the owner then may receive a percentage of those sales. plus ,kick clauses attached to a tenants percentage rent may allow a owner to terminate a lease if sales levels aren't met How are cost increases calculated for a property? (page 4-10) - ✔✔In a modified gross lease, the increase in payment required from each tenant may be calculated using either a base year or a base amount. When calculating an increase over the expenses in the year of occupancy or any other year, this period is known as the base year. In lieu of using operating costs from a particular year of operation, some - ✔✔leases provide for a set dollar amount to be established as the base amount. This amount is also called an expense stop. In each case, tenants pay only their portion (called the pro rata share) of the incremental increase over the base amount. What are the best practices for communicating charges to tenants? - ✔✔the building professional must provide the tenant as much information with a explanation to ensure they understand. transparency is key in communicating charges to tenants Scenario - Chapter 4. Given that the ultimate goal of any property owner is creating net operating income (NOI), Carmichael Properties has not been doing well. While the properties they own are in good condition, are situated in desirable locations, - ✔✔and are highly valued, they nevertheless fail to deliver a decent NOI. Ownership is hoping that the hiring of Natalie as property manager can help turn the situation around..

Instead of using the operating costs from a base year of operation to assess modified gross lease rent increases, Carmichael Properties uses the expense stop method. This is a somewhat confusing method, and Carmichael and its tenants experience this confusion. - ✔✔However, in spite of what people may believe, the rule is that when the expense stop is reached, the owner ..blank..paying and the tenant ..blank..paying. a. begins; begins b. begins; stops c. stops; begins d. stops; stops c. stops; begins - ✔✔ In order to calculate each tenant's share of the property cost increases, Natalie would..Blank.. by the tenant's pro rata share. - ✔✔a. divide the escalatable cost pool b. divide the net cost increase c. multiply the escalatable cost pool d. multiply the net cost increase d. multiply the net cost increase - ✔✔ Natalie is concerned by how the various expenses have been categorized in Carmichael's books. Those expenses that are unrelated to the management, maintenance, and repair of the building should be classified as ..blank..expenses. - ✔✔a. direct b. indirect c. recoverable d. nonrecoverable d. nonrecoverable - ✔✔

Natalie is also concerned that the members of her department do not seem to understand that cash basis income statements do not conform to GAAP requirements. However, even if the department opts to use cash basis—as opposed to accrual basis—for its income statements, the key is to review the expense accounts to ensure that each category contains a full..blank..of activity. - ✔✔a. six months b. 12 months c. two years d. four years b. 12 months - ✔✔ Natalie is dissatisfied with the kind of lease Carmichael Properties employs with the tenants of the retail mall it owns. Since Carmichael incurs the costs of advertising and special promotions to make the mall attractive to consumers, - ✔✔Natalie wants Carmichael to take advantage of ..blank..clauses, which will allow Carmichael to recover these expenses and risks by participating in the success of the retail tenants. a. negotiated rent b. percentage rent c. negotiated pass-through d. percentage pass-through - ✔✔b. percentage rent To ensure that Carmichael Properties receives the value of a dollar of rent adjusted for inflation, base rent is increased annually based on increases in the CPI. Increases are determined by comparing the..blank..CPI to the base CPI. - ✔✔a. anniversary b. averaged c. expected d. traditional a. anniversary - ✔✔ Natalie insists on adherence to best practice in communicating changes in monthly