MGMT 200 EXAM 2 QUESTIONS
AND ANSWERS
Which of the following is not a characteristic of a liability?
-It represents a probable, future sacrifice of economic benefits.
-It must be payable in cash.
-It arises from present obligations to other entities.
-It results from past transactions or events. - Answer-It must be payable in cash
If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest,
how much interest expense does it record for the year ended December 31, 20X1? -
Answer-$450,000
On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable
with the amount borrowed plus accrued interest due six months later on May 1, 20X2.
What is the amount of interest expense to report in 20X2? - Answer-$8,000
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory
note. What entry should Travel Planners record? - Answer-Debit Cash, $5,000; Credit
Notes Payable, $5,000.
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory
note. What entry should First State Bank record? - Answer-Debit Notes Receivable,
$5,000; Credit Cash, $5,000.
Interest expense is recorded in the period in which: - Answer-The interest is incurred
Which of the following is paid by both the employee and the employer?
-FICA taxes.
-Federal unemployment taxes.
-State unemployment taxes.
-Personal income taxes. - Answer-FICA taxes
Which of the following increases an employer's payroll costs?
-FICA withholding from the employee.
-State income tax.
-Federal income tax.
-Employer's FICA contribution. - Answer-Employer's FICA contribution
, Federal and state income taxes withheld by employers from their employees' payroll are
initially recorded with a credit to a(n): - Answer-Liability
When a customer pays in advance for a product or service, the advance payment
received by the company is recorded as: - Answer-A debit to an asset and a credit to a
liability account.
When a product or service is delivered to a customer that previously paid in advance,
the delivery is recorded as: - Answer-A debit to a liability and a credit to a revenue
account.
Which of the following is reported as a current liability?
-Notes payable due in two years.
-Notes payable due in 15 months.
-Current portion of long-term debt.
-Unused line of credit. - Answer-Current portion of long-term debt
A contingent liability that is probable and can be reasonably estimated must be -
Answer-Recorded
Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an
alleged trademark violation. At the end of the year, Neuman's attorney estimates that
the company will likely win the lawsuit and be awarded between $1.5 and $2 million,
with the most likely amount being $1.8 million. How much should Neuman record as a
gain? - Answer-$0
Aviation Systems sells its products with a three-year manufacturing warranty. The
company's sales revenue is $600,000. Based on prior experience, the company
estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to
these sales were $5,000 during the year. How much warranty expense should the
company record this year? - Answer-$30,000
Management can estimate the amount of loss that will occur due to litigation against the
company. If the likelihood of loss is reasonably likely, a contingent liability should be: -
Answer-Disclosed but not reported as a liability
When a company provides services on account, which of the following accounts is
debited? - Answer-accounts receivable
The amount of cash owed to the company by its customers from the sale of products or
services on account is known as: - Answer-accounts receivable
A sales discount is recorded by the seller as a(n): - Answer-contra revenue
AND ANSWERS
Which of the following is not a characteristic of a liability?
-It represents a probable, future sacrifice of economic benefits.
-It must be payable in cash.
-It arises from present obligations to other entities.
-It results from past transactions or events. - Answer-It must be payable in cash
If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest,
how much interest expense does it record for the year ended December 31, 20X1? -
Answer-$450,000
On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable
with the amount borrowed plus accrued interest due six months later on May 1, 20X2.
What is the amount of interest expense to report in 20X2? - Answer-$8,000
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory
note. What entry should Travel Planners record? - Answer-Debit Cash, $5,000; Credit
Notes Payable, $5,000.
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory
note. What entry should First State Bank record? - Answer-Debit Notes Receivable,
$5,000; Credit Cash, $5,000.
Interest expense is recorded in the period in which: - Answer-The interest is incurred
Which of the following is paid by both the employee and the employer?
-FICA taxes.
-Federal unemployment taxes.
-State unemployment taxes.
-Personal income taxes. - Answer-FICA taxes
Which of the following increases an employer's payroll costs?
-FICA withholding from the employee.
-State income tax.
-Federal income tax.
-Employer's FICA contribution. - Answer-Employer's FICA contribution
, Federal and state income taxes withheld by employers from their employees' payroll are
initially recorded with a credit to a(n): - Answer-Liability
When a customer pays in advance for a product or service, the advance payment
received by the company is recorded as: - Answer-A debit to an asset and a credit to a
liability account.
When a product or service is delivered to a customer that previously paid in advance,
the delivery is recorded as: - Answer-A debit to a liability and a credit to a revenue
account.
Which of the following is reported as a current liability?
-Notes payable due in two years.
-Notes payable due in 15 months.
-Current portion of long-term debt.
-Unused line of credit. - Answer-Current portion of long-term debt
A contingent liability that is probable and can be reasonably estimated must be -
Answer-Recorded
Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an
alleged trademark violation. At the end of the year, Neuman's attorney estimates that
the company will likely win the lawsuit and be awarded between $1.5 and $2 million,
with the most likely amount being $1.8 million. How much should Neuman record as a
gain? - Answer-$0
Aviation Systems sells its products with a three-year manufacturing warranty. The
company's sales revenue is $600,000. Based on prior experience, the company
estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to
these sales were $5,000 during the year. How much warranty expense should the
company record this year? - Answer-$30,000
Management can estimate the amount of loss that will occur due to litigation against the
company. If the likelihood of loss is reasonably likely, a contingent liability should be: -
Answer-Disclosed but not reported as a liability
When a company provides services on account, which of the following accounts is
debited? - Answer-accounts receivable
The amount of cash owed to the company by its customers from the sale of products or
services on account is known as: - Answer-accounts receivable
A sales discount is recorded by the seller as a(n): - Answer-contra revenue
