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1.Quayle Company
has been sued by a customer who claims injury from use of Quayles product.
The companys 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 companys 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)

Bishops 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
Bishops 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

1.Quayle Company
has been sued by a customer who claims injury from use of Quayles product.
The companys 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.+ EquityRev. Exp.= Net Inc.Cash FlowNA+-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?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) 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?

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) Row One
Row Two
Row Three
Row Four

9.Liquidity refers
to a companys 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?RowAssets=Liabilities+EquityRevenue-Expenses=Net Inc.CashOne(75)=(75)+NANA-NA=NA(75) FATwo(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) 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) Bishops 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
Bishops 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

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