Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet? (Points : 2)
Accounts payable
Wages payable
Bonds payable
Interest payable
2. In accounting for a contingent liability, if the likelihood of the obligation is probable and the amount can be estimated, a company must: (Points : 2)
report the liability on the balance sheet.
provide disclosure in the footnotes to the financial statements.
not recognize the liability until it is certain and the exact amount is known.
do nothing.
3. In accounting for a contingent liability, if the likelihood of the obligation is probable but the amount can not be estimated, a company must: (Points : 2)
recognize the liability and report it on the balance sheet.
provide disclosure in the footnotes to the financial statements.
not recognize or disclose the liability until it is certain and the exact amount is known.
do nothing.
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. Knowles Company issued $100,000 of bonds at face value on January 1. The bonds carry an 8% annual stated rate of interest. Interest is payable in cash on December 31 of each year. Which of the following reflects the financial statement effects of the first interest payment?
Row
Assets
=
Liab.
+
Equity
Rev.
–
Exp.
=
Net Inc.
Cash Flow
One
($8,000)
=
NA
+
($8,000)
NA
–
$8,000
=
($8,000)
($8,000) OA
Two
($8,000)
=
NA
+
($8,000)
NA
–
$8,000
=
($8,000)
($8,000) FA
Three
NA
=
8,000
+
($8,000)
NA
–
$8,000
=
($8,000)
NA
Four
($8,000)
=
($8,000)
+
NA
NA
–
$8,000
=
($8,000)
($8,000) OA
(Points : 2)
Row One
Row Two
Row Three
Row Four
6. 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
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(Points : 2)
Row One
Row Two
Row Three
Row Four
7. Accrual of interest on a note payable is a(n): (Points : 2)
asset source transaction.
asset use transaction.
asset exchange transaction.
claims exchange transaction.
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 shows the effect of the December 31, 2010 payment? (Figures rounded to nearest dollar)
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Row
Assets
=
Liabilities
+
Equity
Revenue
–
Expenses
=
Net Inc.
Cash
One
(578)
=
(453)
+
(125)
NA
–
125
=
(125)
(453)FA/(125)OA
Two
578
=
578
+
NA
NA
–
NA
=
NA
578 OA
Three
(578)
=
(453)
+
(125)
NA
–
125
=
(125)
(453)OA/(125)FA
Four
(578)
=
(125)
+
(453)
NA
–
453
=
(453)
(453)IA/(125)OA
(Points : 2)
Row One
Row Two
Row Three
Row Four
9. 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 answers correctly shows the effect of the issuance of the note on Halogen’s financial statements?
![]()
Row
Assets
=
Liabilities
+
Equity
Revenue
–
Expenses
=
Net Inc.
Cash
One
NA
=
2500
+
(2500)
NA
–
2500
=
(2500)
NA
Two
2500
=
2500
+
NA
NA
–
NA
=
NA
2500FA
Three
(2500)
=
NA
+
(2500)
NA
–
2500
=
(2500)
(2500)IA
Four
2500
=
NA
+
2500
2500
–
NA
=
NA
2500OA
(Points : 2)
Row One
Row Two
Row Three
Row Four
10. In accounting for a contingent liability, if the likelihood of the obligation is remote, a company should: (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.
11. 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
12. Purchase of treasury stock for cash is what kind of transaction? (Points : 2)
Asset source
Asset use
Asset exchange
Claims exchange
13. Which of the following terms designates the maximum number of shares a corporation may issue? (Points : 2)
Outstanding shares
Authorized shares
Treasury stock
Issued shares
14. When a company purchases treasury stock: (Points : 2)
total equity decreases.
cash flow from investing activities decreases.
total assets are unaffected.
total assets increase.
15. 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.
16. The par value of common stock: (Points : 2)
changes in proportion to market value.
is not directly related to market value.
is greater than market value.
is less than market value.
17. 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.
= $16 x 2,000
= $32,000
18. The declaration of a cash dividend will: (Points : 2)
decrease assets and equity.
increase liabilities and decrease equity.
decrease liabilities and increase equity.
increase assets and liabilities.
19. 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
20. The issuance of a stock dividend will: (Points : 2)
not affect total equity.
increase retained earnings.
decrease total paid-in capital.
decrease net income.
