St. Leo MBA 560 module 4 test
1. Quayle Company has been sued by a customer who claims injury from use of Quayle’s product. The company’s lawyers and a consultant believe the likelihood of a judgment against Quayle is remote. What should Quayle do to account for this potential liability? (Points : 2)
[removed] Recognize the liability and report it on the balance sheet. [removed] Provide disclosure in the footnotes to the financial statements. [removed] Report an allowance account on the balance sheet. [removed] Do nothing. |
2. How does the amortization of the principal balance affect the amount of interest expense recorded each succeeding year? (Points : 2)
[removed] Has no effect on interest expense each succeeding year [removed] Increases the amount of interest expense each succeeding year [removed] Reduces the amount of interest expense each succeeding year [removed] The effect depends on the interest rate |
3. Borrowing by issuing a note payable is a(n): (Points : 2)
[removed] asset source transaction. [removed] asset use transaction. [removed] asset exchange transaction. [removed] claims exchange transaction. |
4. A current asset is a(n): (Points : 2)
[removed] asset that will be used in the operating activities of a business. [removed] asset generated by the operations of a business within the past year. [removed] asset that is expected to be used or converted to cash within one year or the operating cycle, whichever is longer. [removed] miscellaneous asset that is small in dollar amount. |
5. Applegate Company experienced an accounting event that affected its financial statements as indicated below: Assets=Liab.+ EquityRev.– Exp.= Net Inc.Cash Flow– ––NA+–-F/A – OA Which of the following accounting events could have caused these effects on Knight’s statements? (Points : 2)
[removed] Made a payment on a term loan [removed] Borrowed funds through a line of credit [removed] Paid interest on bonds [removed] Repaid principal on bonds at maturity |
6. Current liabilities include: (Points : 2)
[removed] some notes payable. [removed] taxes payable. [removed] the current portion of some long-term liabilities. [removed] all of the above. |
7. Locke Company issued bonds payable. Which of the following choices accurately reflects how the issue would affect Locke’s financial statements?RowAssets=Liab.+EquityRev.-Exp.=Net Inc.Cash FlowOne+=++NANA-+=NANATwo+=+++NA-NA=NA+ FAThree+=NA++NA-NA=NA+ OAFour+=++NANA-NA=NA+ FA(Points : 2)
[removed] Row One [removed] Row Two [removed] Row Three [removed] Row Four |
8. The Halogen Corporation issued a 5-year note payable on January 1, 2010 for $2,500. The interest rate is 5% and the annual payment of $578, due each December 31, includes both interest and principal. Which of the following correctly shows the effects of the December 31, 2011, payment? RowAssets=Liabilities+EquityRevenue-Expenses=Net Inc.CashOne(578)=(476)+(102)NA-102=(102)(476)FA/(102)OATwo578=578+NANA-NA=NA578FAThree(578)=(578)+NANA-NA=NA(578)FAFour(578)=(476)+(50)NA-50=(50)(476)FA/(50)OA(Points : 2) [removed] Row One [removed] Row Two [removed] Row Three [removed] Row Four |
9. Liquidity refers to a company’s ability to: (Points : 2)
[removed] sell inventory in a timely manner. [removed] generate profits from operations. [removed] repay liabilities in the long run. [removed] generate cash flows to pay current liabilities. |
10. On January 1, 2010, Hays Corporation arranged a $3,000 line of credit with the Barnett Bank. It agreed to accept the bank’s offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and payments on principal are to take place on January 1 of each year. Hays began its loan transactions with Barnett Bank by borrowing $1,000 on January 1, 2010. On January 1, 2011, Hays borrowed an additional $1,000 from Barnett Bank, bringing the total amount borrowed to $2,000. On January 1, 2012, Hays paid $500 on the principal of the loan. On December 31, 2012, Hays records the 2012 interest payment. The prime rate for 2012 was 5%. Which of the following answers shows the effect of the 2012 interest payment on the financial statements?RowAssets=Liabilities+EquityRevenue-Expenses=Net Inc.CashOne(75)=(75)+NANA-NA=NA(75) FA Two(75)=NA+(75)NA-75=(75)(75) OAThree(90)=(90)+NANA-NA=NA(90) FAFour(90)=NA+(90)NA-90=(90)(90) OA(Points : 2) [removed] Row One [removed] Row Two [removed] Row Three [removed] Row Four |
11. Flynn Company issued 2,000 shares of $10 par value common stock at a market price of $16. As a result of this accounting event, total paid-in capital would: (Points : 2)
[removed] increase by $12,000. [removed] be unaffected by the event. [removed] increase by $32,000. [removed] increase by $20,000. |
12. The price-earnings ratio is the: (Points : 2)
[removed] total average stockholder’s equity divided by the number of shares. [removed] interest rate on borrowed money divided by the current prime rate. [removed] price of a company’s products as compared to its net income. [removed] market price of a share of stock divided by the earnings per share. |
13. Reissuance of treasury stock for cash is what kind of transaction? (Points : 2)
[removed] Asset source [removed] Asset use [removed] Asset exchange [removed] Claims exchange |
14. Which form of business organization is established as a separate legal entity from its owners? (Points : 2)
[removed] Sole proprietorship [removed] Corporation [removed] Partnership [removed] None of the above |
15. The difference between the corporate form of business organization and other forms is most clearly shown in which of the following sections of the financial statements? (Points : 2)
[removed] Equity section of the balance sheet [removed] Expenses section of the income statement [removed] Assets section of the balance sheet [removed] Operating activities section of the statement of cash flows |
16. Purchase of treasury stock for cash is what kind of transaction? (Points : 2) [removed] Asset source [removed] Asset use [removed] Asset exchange [removed] Claims exchange |
17. Which of the following would not be a reason for the market price of Bishop Corporation stock to decrease? (Points : 2)
[removed] Bishop’s net income for the current year was lower than last year. [removed] The general condition and future outlook of the economy are shaky. [removed] There has been a recent decrease in key interest rates. [removed] Investors expect Bishop’s financial performance to decline in the future. |
18. The issuance of a stock dividend will: (Points : 2)
[removed] not affect total equity. [removed] increase retained earnings. [removed] decrease total paid-in capital. [removed] decrease net income. |
19. Madison Company paid dividends of $3,000, $6,000, and $10,000 during 2008, 2009, and 2010 respectively. The company had 500 shares of preferred stock outstanding with a $10 per share cumulative dividend. The amount of dividends received by the common shareholders during 2010 would be: (Points : 2)
[removed] $6,000 [removed] $5,000 [removed] $3,000 [removed] $4,000 |
20. What kind of transaction is the declaration of a stock dividend? (Points : 2)
[removed] Asset source transaction [removed] Claims exchange transaction [removed] Asset use transaction [removed] Asset exchange transaction |