St. Leo MBA 560 module 4 test

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)

Recognize the liability and report it on the balance sheet.
Provide disclosure in the footnotes to the financial statements.
Report an allowance account on the balance sheet.
Do nothing.



2.How does the amortization of the principal balance affect the amount of interest expense recorded each succeeding year? (Points : 2)

Has no effect on interest expense each succeeding year
Increases the amount of interest expense each succeeding year
Reduces the amount of interest expense each succeeding year
The effect depends on the interest rate


3.Borrowing by issuing a note payable is a(n): (Points : 2)

asset source transaction.
asset use transaction.
asset exchange transaction.
claims exchange transaction.



4.A current asset is a(n): (Points : 2)

asset that will be used in the operating activities of a business.
asset generated by the operations of a business within the past year.
asset that is expected to be used or converted to cash within one year or the operating
cycle, whichever is longer.
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.

+ Equity

Rev.

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)

Made a payment on a term loan
Borrowed funds through a line of credit
Paid interest on bonds
Repaid principal on bonds at maturity


6.Current liabilities include: (Points : 2)

some notes payable.
taxes payable.
the current portion of some long-term liabilities.
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?

Row

Assets

=

Liab.

+

Equity

Rev.

-

Exp.

=

Net Inc.

Cash Flow

One

+

=

+

+

NA

NA

-

+

=

NA

NA

Two

+

=

+

+

+

NA

-

NA

=

NA

+ FA

Three

+

=

NA

+

+

NA

-

NA

=

NA

+ OA

Four

+

=

+

+

NA

NA

-

NA

=

NA

+ FA

(Points : 2)

Row One
Row Two
Row Three
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?

Row

Assets

=

Liabilities

+

Equity

Revenue

-

Expenses

=

Net Inc.

Cash

One

(578)

=

(476)

+

(102)

NA

-

102

=

(102)

(476)FA/(102)OA

Two

578

=

578

+

NA

NA

-

NA

=

NA

578FA

Three

(578)

=

(578)

+

NA

NA

-

NA

=

NA

(578)FA

Four

(578)

=

(476)

+

(50)

NA

-

50

=

(50)

(476)FA/(50)OA

(Points : 2)

Row One
Row Two
Row Three
Row Four


9.Liquidity refers to a company s ability to: (Points : 2)

sell inventory in a timely manner.
generate profits from operations.
repay liabilities in the long run.
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?

Row

Assets

=

Liabilities

+

Equity

Revenue

-

Expenses

=

Net Inc.

Cash

One

(75)

=

(75)

+

NA

NA

-

NA

=

NA

(75) FA

Two

(75)

=

NA

+

(75)

NA

-

75

=

(75)

(75) OA

Three

(90)

=

(90)

+

NA

NA

-

NA

=

NA

(90) FA

Four

(90)

=

NA

+

(90)

NA

-

90

=

(90)

(90) OA

(Points : 2)

Row One
Row Two
Row Three
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)

increase by $12,000.
be unaffected by the event.
increase by $32,000.
increase by $20,000.


12.The price-earnings ratio is the: (Points : 2)

total average stockholder's equity divided by the number of shares.
interest rate on borrowed money divided by the current prime rate.
price of a company's products as compared to its net income.
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)

Asset source
Asset use
Asset exchange
Claims exchange



14.Which form of business organization is established as a separate legal entity from its owners? (Points : 2)

Sole proprietorship
Corporation
Partnership
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)

Equity section of the balance sheet
Expenses section of the income statement
Assets section of the balance sheet
Operating activities section of the statement of cash flows


16.Purchase of treasury stock for cash is what kind of transaction? (Points : 2)

Asset source
Asset use
Asset exchange
Claims exchange



17.Which of the following would not be a reason for the market price of Bishop Corporation stock to decrease? (Points : 2)

Bishop s net income for the current year was lower than last year.
The general condition and future outlook of the economy are shaky.
There has been a recent decrease in key interest rates.
Investors expect Bishop s financial performance to decline in the future.


18.The issuance of a stock dividend will: (Points : 2)

not affect total equity.
increase retained earnings.
decrease total paid-in capital.
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)

$6,000
$5,000
$3,000
$4,000


20.What kind of transaction is the declaration of a stock dividend? (Points : 2)

Asset source transaction
Claims exchange transaction
Asset use transaction
Asset exchange transaction