accounting exam 3 mc practice

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity? The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time. The stockholders' equity section shows activity over a period of time, whereas the statement of stockholders' equity is at a point in time. There are no differences between them. The stockholders' equity section is more detailed than the statement of stockholders' equity.

The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account? $0. $2,000. $8,000. $10,000.

$2,000.

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as: A debit to an asset and a credit to a liability account. A debit to a revenue and a credit to an asset account. A debit to an asset and a credit to a revenue account. A debit to a liability and a credit to a revenue account.

A debit to an asset and a credit to a liability account.

Which of the following is not a current liability? Notes payable due in six months. Current portion of long-term debt. An unused line of credit. Deferred revenue to be earned in nine months.

An unused line of credit.

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. The company should report the following adjusting entry at December 31, 20X1: Debit interest expense and credit interest payable, $4,000. Debit interest expense and credit cash, $4,000. Debit interest expense and credit interest payable, $12,000. Debit interest expense and credit cash, $12,000.

Debit interest expense and credit interest payable, $4,000.

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? $2.0 million. $1.8 million. $1.5 million. $0.

$0.

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for: $100,000. $1,600,000. $1,700,000. $1,800,000.

$1,600,000.

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. For the first month's payment, what is the amount to record for interest expense? $120. $129. $68. $155.

$129.

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. After the first month's payment, what is the balance of the note? $30,723. $29,640. $29,769. $30,871.

$29,769.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 31, 2022? $0. $4.5 million. $1.5 million. $6 million.

$4.5 million.

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year? $400. $320. $720. $0.

$400.

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? $300,000 $450,000 $150,000 $600,000

$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? $0 $12,000 $8,000 $24,000

$8,000

Treasury stock is recorded as: An asset. A liability. An increase in stockholders' equity. A decrease in stockholders' equity.

A decrease in stockholders' equity.

Which of the following is not a primary source of long-term debt financing? Notes payable. Accounts payable. Leases. Bonds.

Accounts payable.

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation? As a liability for $700,000 with disclosure of the range. As a liability for $600,000 with disclosure of the range. As a liability for $500,000 with disclosure of the range. As a disclosure only. No liability is reported.

As a liability for $500,000 with disclosure of the range.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be Disclosed but not reported as a liability. Disclosed and reported as a liability. Neither disclosed nor reported as a liability. Reported as a liability but not disclosed.

Disclosed but not reported as a liability.

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.

Current portion of long-term debt.

Cash dividends are initially recorded on which date? Date of declaration. Date of record. Date of payment. Balance sheet date.

Date of declaration.

On the date of dividend declaration, which of the following entries is recorded? Debit Dividends; Credit Cash. Debit Dividends; Credit Dividends Payable. Debit Dividends Payable; Credit Cash. No entry is recorded.

Debit Dividends; Credit Dividends Payable.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase? Debit Treasury Stock for $32,000. Debit Common Stock for $30,000. Debit Common Stock for $32,000. Debit Treasury Stock for $2,000.

Debit Treasury Stock for $32,000.

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: Disclosed but not reported as a liability. Disclosed and reported as a liability. Neither disclosed or reported as a liability. Reported as a liability but not disclosed.

Disclosed but not reported as a liability.

The disadvantages of a corporation compared to a sole proprietorship or partnership include: Double taxation. The ability to raise capital. Limited liability. The ability to transfer ownership.

Double taxation.

Which of the following is a publicly traded company? Facebook. Cargill. Ernst & Young. Koch Industries.

Facebook.

The city of Summerton has a sales tax rate of 8%. A local convenience store sells merchandise, and the customer pays a total of $38.34. What effect does this transaction have on total liabilities? Increase of $3.07. Decrease of $38.34. Increase of $2.84. No effect.

Increase of $2.84.

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.

It must be payable in cash.

An advantage of leasing an asset rather than purchasing the asset is: Leases are not reported as liabilities in the balance sheet. Leases typically require less cash upfront to begin using the asset. Lease payments are tax deductible while depreciation on a purchased asset is not. Leased assets are more likely to generate additional profits than are purchased assets.

Leases typically require less cash upfront to begin using the asset.

Current liabilities May include contingent liabilities. Include obligations payable within one year or one operating cycle, whichever is shorter. Can be satisfied only with the payment of cash. Are preferred by most companies over long-term liabilities.

May include contingent liabilities.

The correct order from the smallest number of shares to the largest number of shares is Authorized, issued, and outstanding. Outstanding, issued, and authorized. Issued, outstanding, and authorized. Issued, authorized, and outstanding.

Outstanding, issued, and authorized.

Which of the following is not a primary source of corporate debt financing? Bonds. Notes. Leases. Receivables.

Receivables.

A contingent liability that is probable and can be reasonably estimated must be Disclosed. Not disclosed. Recorded. Paid.

Recorded.

Which of the following shows activity over a period of time? Stockholders' equity section in the balance sheet. Statement of stockholders' equity. Both the stockholders' equity section in the balance sheet and the statement of stockholders' equity. Neither the stockholders' equity section in the balance sheet or the statement of stockholders' equity.

Statement of stockholders' equity.

Interest expense is recorded in the period in which: The interest is paid. The interest is incurred. The interest is paid or incurred. The interest is paid and incurred.

The interest is incurred.

A company resells 10,000 shares of treasury stock for $22 per share. The stock was purchased in a previous year for $18 per share. By how much would net income be affected by the sale of this treasury stock? $220,000. $180,000. $40,000. There would be no effect on net income from the sale of treasury stock.

There would be no effect on net income from the sale of treasury stock.

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now. one; two one; one two; two one; ten

one; one

In its first three years of operations, a company has net income of $2,000; $5,000; and $8,000. It also pays dividends of $1,000 in the second year, and $3,000 in the third year. What is the balance of Retained Earnings at the end of the third year? $5,000. $11,000. $15,000. $4,000.

$11,000.

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 is the estimated warranty liability reported in the balance sheet this year? $30,000. $25,000. $10,000. $ 5,000.

$25,000.

The correct order from the largest number of shares to the smallest number of shares is: Issued, outstanding, and authorized. Outstanding, issued, and authorized. Authorized, issued, and outstanding. Issued, authorized, and outstanding.

Authorized, issued, and outstanding.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record? Debit Cash, $5,000; Credit Notes Receivable, $5,000. Debit Notes Receivable, $5,000; Credit Cash, $5,000. Debit Cash, $5,000; Credit Notes Payable, $5,000. Debit Notes Payable, $5,000; Credit Cash, $5,000.

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? Debit Cash, $5,000; Credit Notes Receivable, $5,000. Debit Notes Receivable, $5,000; Credit Cash, $5,000. Debit Cash, $5,000; Credit Notes Payable, $5,000. Debit Notes Payable, $5,000; Credit Cash, $5,000.

Debit Notes Receivable, $5,000; Credit Cash, $5,000.

Treasury stock Has a normal credit balance. Decreases stockholders' equity. Is recorded as an investment. Increases stockholders' equity.

Decreases stockholders' equity.

Retained earnings Has a normal debit balance. Decreases stockholders' equity. Is equal to the balance in cash. Increases stockholders' equity.

Increases stockholders' equity.

Which of the following statements regarding liabilities is not true? Liabilities can be for services rather than cash. Liabilities are reported in the balance sheet for almost every business. Liabilities result from future transactions. Liabilities represent probable future sacrifices of benefits.

Liabilities result from future transactions.

The statement of stockholders' equity: Lists the balance of each revenue and each expense, and reports the difference as net income. Summarizes the changes in the balance in each stockholders' equity account over a period of time. Lists the balances of each asset and each liability, and reports the difference as stockholders' equity. All of the other answers are correct.

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

In each succeeding payment on an installment note: The amount that goes to interest expense increases. The amount that goes to interest expense decreases. The amount that goes to interest expense is unchanged. The amounts paid for both interest and principal increase proportionately.

The amount that goes to interest expense decreases.

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for $0. $50,000. $45,000. $95,000.

$45,000.

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? Multiple Choice $0 $12,000 $8,000 $24,000

$8,000

Petite Fashions issued 500,000 of its 2 million shares of authorized common stock. At the end of the accounting period, 450,000 shares are outstanding. How many shares of treasury stock does Petite Fashions have? 1.5 million shares. 450,000 shares. 50,000 shares. 0 shares.

50,000 shares.

An accumulated deficit is: A credit balance in retained earnings. A debit balance in retained earnings. A credit balance in stockholders' equity. A debit balance in stockholders' equity.

A debit balance in retained earnings.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as: A debit to a revenue and a credit to a liability account. A debit to a revenue and a credit to an asset account. A debit to an asset and a credit to a revenue account. A debit to a liability and a credit to a revenue account.

A debit to a liability and a credit to a revenue account.

Declaring a cash dividend has what effect on total stockholders' equity? Cannot be determined from the given information. No effect on total stockholders' equity. An increase in total stockholders' equity. A decrease in total stockholders' equity.

A decrease in total stockholders' equity.

Retained earnings represents: Amount of cash available for paying dividends. Total assets minus total liabilities. Net income minus dividends for the current year. All net income, less all dividends, since the company began operations.

All net income, less all dividends, since the company began operations.

Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note? Lease payments often are lower than installment payments. Leasing generally requires less cash upfront. Leasing typically offers greater flexibility and lower costs in disposing of an asset. All of the answer choices are advantages of leasing.

All of the answer choices are advantages of leasing.

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would: Record a lease asset. Record a lease liability. Record a lease for the present value of the 24 lease payments. All of the answers are correct.

All of the answers are correct.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. The company then resells 400 of these shares for $20 per share. Which of the following is recorded at the time of the resale? Credit Common Stock for $400. Credit Treasury Stock for $8,000. Credit Common Stock for $8,000. Credit Additional Paid-In Capital for $1,600.

Credit Additional Paid-In Capital for $1,600.

A company issues 10,000 shares of $0.05 par value common stock for $25 per share. Which of the following is recorded at issuance? Credit Common Stock for $250,000. Credit Additional Paid-In Capital for $250,000. Credit Common Stock for $500. Credit Additional Paid-In Capital for $500.

Credit Common Stock for $500.

When treasury stock is resold, total stockholders' equity: Increases. Decreases. Does not change. The effect depends on the relationship between the purchase price and resale price.

Increases.

The advantages of a corporation compared to a sole proprietorship or partnership include: Lower total taxes. The ability of stockholders to make operating decisions for their company. Limited liability. Less paper work.

Limited liability.

The advantages of owning a corporation include Difficulty in transferring ownership. Limited liability. Lower taxes. Less paperwork.

Limited liability.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation? As an asset for $125,000. As a gain for $125,000. As both an asset and a gain for $125,000. No asset or gain is reported.

No asset or gain is reported.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021? $0. $4.5 million. $1.5 million. $6 million.

$1.5 million.

If Speedy Travel, Inc. borrows $50 million on September 1 for one year at 9% interest, how much interest expense should it record by December 31 of that same year? $4.5 million. $3.0 million. $1.5 million. $0.

$1.5 million.

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Common Stock for: $100,000. $1,600,000. $1,700,000. $1,800,000.

$100,000.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month? $500. $6,000. $3,042. $2,542.

$2,542.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the second month? $2,529. $2,555. $3,042. $2,542.

$2,555.

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? $30,000. $25,000. $10,000. $ 5,000.

$30,000.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as interest expense in the second month? $500. $513. $487. $6,000.

$487.

A company needs construction equipment to complete a project over the next 20 months. The equipment costs $10,000. Instead of purchasing the equipment with a 12% note, the company leases the equipment with payments of $300 due at the end of each month. For what amount would the company record the lease liability at the beginning of the lease? $5,414. $6,000. $4,586. $10,000.

$5,414.

Airline Accessories obtains a $100,000, three year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded for interest expense for the first full month? $500. $6,000. $3,042. $2,542.

$500.

Which of the following represents a characteristic of a liability? A probable future sacrifice of economic benefits. Arising from present obligations to other entities. Resulting from past transactions or events. All of these are characteristics of a liability.

All of these are characteristics of a liability.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation? As a liability for $75,000 with disclosure of the range. As a liability for $125,000 with disclosure of the range. As a liability for $175,000 with disclosure of the range. As a disclosure only. No liability is reported.

As a liability for $75,000 with disclosure of the range.

Which of the following is not an advantage of debt financing? Interest is tax deductible. The cost of borrowing may be lower than the return on equity. The ownership interest of current stockholders is unchanged. Debt financing often has no maturity date.

Debt financing often has no maturity date.

We credit Dividends Payable on Payment date. Record date. Declaration date. Never.

Declaration date.

When treasury stock is purchased, what is the effect on total shareholders' equity? Increase. Decrease. No effect. Cannot be determined from the given information.

Decrease.

Which of the following stages of equity financing would come last for most public companies? Investment by the founders of the business. Initial public offering. Outside investment by "angel" investors and venture capital firms. Investment by friends and family.

Initial public offering.

A company's capital structure refers to: Its mixture of current versus long-term assets. Its mixture of current versus long-term liabilities. Its mixture of liabilities and stockholders' equity. Its mixture of paid-in capital versus retained earnings.

Its mixture of liabilities and stockholders' equity.

Which of the following statements regarding liabilities is true? Liabilities are always payable in cash. Liabilities are all reported as current in the balance sheet. Liabilities result from future transactions. Liabilities represent probable future sacrifices of benefits.

Liabilities represent probable future sacrifices of benefits.

Cash dividends are based on the number of shares: Authorized. Issued. Outstanding. Authorized and issued.

Outstanding.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as Sales tax expense. Sales tax revenue. Sales tax receivable. Sales tax payable.

Sales tax payable.

If a company issues par-value stock, the amount credited to common stock will be: The total market value of all the shares issued. The par value per share times the number of shares issued. The difference between the market and the par value per share times the total number of shares issued. The amount the board of directors chooses to assign to the shares.

The par value per share times the number of shares issued.

Common shareholders usually have all of the following rights except: To participate in the day-to-day operations. To share in the distribution of assets. To elect board of directors. To receive dividends when declared.

To participate in the day-to-day operations.

We record interest expense on a note payable in the period in which We pay cash for interest. We incur interest. We pay cash and incur interest. We pay cash or incur interest.

We incur interest.