MGMT 200 Final Purdue || QUESTIONS WITH 100%
CORRECT ANSWERS.
Woodcrest, Inc. borrowed $50k from a local bank and signed a promissory note. What entry
should they record?
A. Debit Cash, 50k. Credit Notes Receivable, 50k
B. Debit Notes Rec., 50k. Credit Cash, 50k
C. Debit Cash, 50k. Credit Notes Pay 50k
D. Debit Notes Pay, 50k, Credit Cash 50k correct answers C
We record interest expense in the period in which we
pay it, rather than in the period we incur it
A. T
B. F correct answers B. Interest expense is recorded in the
period incurred, not in the period in
which we pay it.
On November 1, 2018, Knomark, Inc. signed a
$100,000, 6%, six‐month note payable with the
amount borrowed plus accrued interest due six months
later on May 1, 2019. Knomark should report interest
payable at December 31, 2018, in the amount of
A. 0
B. 1k
C. 2k
D. 3k correct answers B. [($100,000 × 6%) × 2/12] = $1,000
On November 1, 2018, Boiler Bakery signed a $200,000,
6%, six‐month note payable with the amount borrowed
plus accrued interest due six months later on May 1, 2019.
Boiler Bakery records the appropriate adjusting entry for
the note on December 31, 2018. What amount of cash will
be needed to pay back the note payable plus any accrued
interest on May 1, 2019?
A. $200,000.
B. $202,000
C. $204,000
D. $206,000 correct answers D. $200,000 + [$200,000 × 6% × 6/12] = $206,000
A contingency is best described as a(n)
a. current liability.
b. probable liability.
c. potential liability.
d. estimated liability. correct answers C
If management can estimate the amount of loss that
will occur due to litigation against the company, and
the likelihood of the loss is reasonably possible, a
,contingent liability should be
A. Disclosed, but not reported as a liability
B. Disclosed and reported as a liability
C. Neither disclosed nor reported as a liability
D. Reported as a liability, but not disclosed correct answers A. must be probable
Reeves Co. filed suit against Higgins, Inc., seeking damages for
copyright violations. Higgins' legal counsel believes it is
probable that Higgins will settle the lawsuit for an estimated
amount in the range of $100,000 to $200,000, with all amounts
in the range considered equally likely. How should Higgins
report this litigation?
A. As a liability for $100,000 with disclosure of the range
B. As a liability for $150,000 with disclosure of the range
C. As a liability for $200,000 with disclosure of the range
D. As a disclosure only. No liability is reported correct answers A. When no amount within a
range of potential losses appears
more likely than others, the liability is recorded at the
minimum amount in the range
Away Travel filed suit against West Coast Travel seeking damages
for copyright violations. West Coast Travel's legal counsel
believes it is reasonably possible that West Coast Travel will
settle the lawsuit for an estimated amount in the range of
$100,000 to $200,000, with all amounts in the range considered
equally likely. How should West Coast Travel report this
litigation?
A. As a liability for $100,000 with disclosure of the range
B. As a liability for $150,000 with disclosure of the range
C. As a liability for $200,000 with disclosure of the range
D. As a disclosure only. No liability is reported correct answers D. A contingent liability is
not recorded if the likelihood of
loss is only reasonably possible
If management can estimate the amount of loss that
will occur due to litigation against the company, and
the likelihood of the loss is probable, a contingent
liability should be
A. Disclosed, but not reported as a liability
B. Disclosed and reported as a liability
C. Neither disclosed nor reported as a liability
D. Reported as a liability, but not disclosed correct answers B.
Footnote disclosure is required for material potential
losses when the loss is at least reasonably possible:
A. Only if the amount is known.
B. Only if the amount is known or reasonably
estimable.
C. Unless the amount is not reasonably estimable.
D. Even if the amount is not reasonably estimable. correct answers D.
, Ford estimates engine warranty expense in the year
a car is sold. This best follows which of the
following accounting principles?
A. historical cost
B. full disclosure
C. consistency
D. matching correct answers D.
The balance in the Warranty Liability account is always
equal to Warranty Expense
A. True
B. False correct answers B. The Warranty Liability account is increased
by warranty expense, but it is also reduced
over time by actual warranty expenditures
Strikers, Inc. sells soccer goals to customers over the
Internet. History has shown that 2% of Strikers' goals will
need repair under the warranty program. For the year,
Strikers has sold 4,000 goals and 45 have been repaired.
If the estimated cost to repair a goal is $200, what would
be the warranty expense for the year?
A. $0
B. $16,000
C. $7,000
D. $9,000 correct answers B. 4,000 goals × 2% 80/goals
cost to repair × $200/goal
warranty expense $16,000
Strikers, Inc. sells soccer goals to customers over the Internet.
History has shown that 2% of Strikers' goals will need repair under
the warranty program. For the year, Strikers has sold 4,000 goals
and 45 have been repaired. If the estimated cost to repair a goal is
$200, what would be the warranty liability at the end of the year?
A. $0
B. $16,000
C. $7,000
D. $9,000 correct answers C. Warranty Liability
Account
$16,000
$9,000
$ 7,000
45 x $200/goal = $9,000
35 x $200/goal = $7,000
We record gain contingencies when the gain is
probable and the amount is reasonably estimable
A. True
B. False correct answers B. We do not record gain contingencies until the
gain is certain
CORRECT ANSWERS.
Woodcrest, Inc. borrowed $50k from a local bank and signed a promissory note. What entry
should they record?
A. Debit Cash, 50k. Credit Notes Receivable, 50k
B. Debit Notes Rec., 50k. Credit Cash, 50k
C. Debit Cash, 50k. Credit Notes Pay 50k
D. Debit Notes Pay, 50k, Credit Cash 50k correct answers C
We record interest expense in the period in which we
pay it, rather than in the period we incur it
A. T
B. F correct answers B. Interest expense is recorded in the
period incurred, not in the period in
which we pay it.
On November 1, 2018, Knomark, Inc. signed a
$100,000, 6%, six‐month note payable with the
amount borrowed plus accrued interest due six months
later on May 1, 2019. Knomark should report interest
payable at December 31, 2018, in the amount of
A. 0
B. 1k
C. 2k
D. 3k correct answers B. [($100,000 × 6%) × 2/12] = $1,000
On November 1, 2018, Boiler Bakery signed a $200,000,
6%, six‐month note payable with the amount borrowed
plus accrued interest due six months later on May 1, 2019.
Boiler Bakery records the appropriate adjusting entry for
the note on December 31, 2018. What amount of cash will
be needed to pay back the note payable plus any accrued
interest on May 1, 2019?
A. $200,000.
B. $202,000
C. $204,000
D. $206,000 correct answers D. $200,000 + [$200,000 × 6% × 6/12] = $206,000
A contingency is best described as a(n)
a. current liability.
b. probable liability.
c. potential liability.
d. estimated liability. correct answers C
If management can estimate the amount of loss that
will occur due to litigation against the company, and
the likelihood of the loss is reasonably possible, a
,contingent liability should be
A. Disclosed, but not reported as a liability
B. Disclosed and reported as a liability
C. Neither disclosed nor reported as a liability
D. Reported as a liability, but not disclosed correct answers A. must be probable
Reeves Co. filed suit against Higgins, Inc., seeking damages for
copyright violations. Higgins' legal counsel believes it is
probable that Higgins will settle the lawsuit for an estimated
amount in the range of $100,000 to $200,000, with all amounts
in the range considered equally likely. How should Higgins
report this litigation?
A. As a liability for $100,000 with disclosure of the range
B. As a liability for $150,000 with disclosure of the range
C. As a liability for $200,000 with disclosure of the range
D. As a disclosure only. No liability is reported correct answers A. When no amount within a
range of potential losses appears
more likely than others, the liability is recorded at the
minimum amount in the range
Away Travel filed suit against West Coast Travel seeking damages
for copyright violations. West Coast Travel's legal counsel
believes it is reasonably possible that West Coast Travel will
settle the lawsuit for an estimated amount in the range of
$100,000 to $200,000, with all amounts in the range considered
equally likely. How should West Coast Travel report this
litigation?
A. As a liability for $100,000 with disclosure of the range
B. As a liability for $150,000 with disclosure of the range
C. As a liability for $200,000 with disclosure of the range
D. As a disclosure only. No liability is reported correct answers D. A contingent liability is
not recorded if the likelihood of
loss is only reasonably possible
If management can estimate the amount of loss that
will occur due to litigation against the company, and
the likelihood of the loss is probable, a contingent
liability should be
A. Disclosed, but not reported as a liability
B. Disclosed and reported as a liability
C. Neither disclosed nor reported as a liability
D. Reported as a liability, but not disclosed correct answers B.
Footnote disclosure is required for material potential
losses when the loss is at least reasonably possible:
A. Only if the amount is known.
B. Only if the amount is known or reasonably
estimable.
C. Unless the amount is not reasonably estimable.
D. Even if the amount is not reasonably estimable. correct answers D.
, Ford estimates engine warranty expense in the year
a car is sold. This best follows which of the
following accounting principles?
A. historical cost
B. full disclosure
C. consistency
D. matching correct answers D.
The balance in the Warranty Liability account is always
equal to Warranty Expense
A. True
B. False correct answers B. The Warranty Liability account is increased
by warranty expense, but it is also reduced
over time by actual warranty expenditures
Strikers, Inc. sells soccer goals to customers over the
Internet. History has shown that 2% of Strikers' goals will
need repair under the warranty program. For the year,
Strikers has sold 4,000 goals and 45 have been repaired.
If the estimated cost to repair a goal is $200, what would
be the warranty expense for the year?
A. $0
B. $16,000
C. $7,000
D. $9,000 correct answers B. 4,000 goals × 2% 80/goals
cost to repair × $200/goal
warranty expense $16,000
Strikers, Inc. sells soccer goals to customers over the Internet.
History has shown that 2% of Strikers' goals will need repair under
the warranty program. For the year, Strikers has sold 4,000 goals
and 45 have been repaired. If the estimated cost to repair a goal is
$200, what would be the warranty liability at the end of the year?
A. $0
B. $16,000
C. $7,000
D. $9,000 correct answers C. Warranty Liability
Account
$16,000
$9,000
$ 7,000
45 x $200/goal = $9,000
35 x $200/goal = $7,000
We record gain contingencies when the gain is
probable and the amount is reasonably estimable
A. True
B. False correct answers B. We do not record gain contingencies until the
gain is certain
