Mgmt 200 Final Exam 2022 -Purdue University
Woodcrest, Inc. borrowed $50,000 from a local bank
and signed a promissory note. What entry should
Woodcrest record?
A. Debit Cash, $50,000; Credit Notes Receivable,
$50,000.
B. Debit Notes Receivable, $50,000; Credit Cash,
$50,000.
C. Debit Cash, $50,000; Credit Notes Payable,
$50,000.
D. Debit Notes Payable, $50,000; Credit Cash,
$50,000. Correct Answer: C
True or False: We record interest expense in the period in which we pay it, rather than in the
period we incur it Correct Answer: False, 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. $1,000
C. $2,000
D. $3,000 Correct Answer: 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 Answer: 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 Answer: 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 Answer: A
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 Answer: 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 Answer: 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 Answer: 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 Answer: 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 Answer: D
True or False: The balance in the Warranty Liability account is always equal to Warranty
Expense Correct Answer: False, 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 Answer: B, (4,000*2%)*200
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 Answer: C
True or False: We record gain contingencies when the gain is probable and the amount is
reasonably estimable Correct Answer: False, we do not record gain contingencies until the gain
is certain
Which of the following is not a true statement?
A. Companies that are believed to have high
bankruptcy risk generally receive low credit ratings
and must pay a higher interest rate for borrowing
B. As a company's level of debt increases, the risk of
Woodcrest, Inc. borrowed $50,000 from a local bank
and signed a promissory note. What entry should
Woodcrest record?
A. Debit Cash, $50,000; Credit Notes Receivable,
$50,000.
B. Debit Notes Receivable, $50,000; Credit Cash,
$50,000.
C. Debit Cash, $50,000; Credit Notes Payable,
$50,000.
D. Debit Notes Payable, $50,000; Credit Cash,
$50,000. Correct Answer: C
True or False: We record interest expense in the period in which we pay it, rather than in the
period we incur it Correct Answer: False, 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. $1,000
C. $2,000
D. $3,000 Correct Answer: 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 Answer: 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 Answer: 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 Answer: A
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 Answer: 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 Answer: 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 Answer: 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 Answer: 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 Answer: D
True or False: The balance in the Warranty Liability account is always equal to Warranty
Expense Correct Answer: False, 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 Answer: B, (4,000*2%)*200
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 Answer: C
True or False: We record gain contingencies when the gain is probable and the amount is
reasonably estimable Correct Answer: False, we do not record gain contingencies until the gain
is certain
Which of the following is not a true statement?
A. Companies that are believed to have high
bankruptcy risk generally receive low credit ratings
and must pay a higher interest rate for borrowing
B. As a company's level of debt increases, the risk of
