1.Quayle Company has been sued by a customer who claims injury from use of Quayle’s product. The company’s 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 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?
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