MGMT 200 EXAM 3 (PURDUE UNIVERSITY) NEWEST 2025 EXAM 3
AND PRACTICE EXAM QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS) |ALREADY GRADED A
Brighton, Inc. borrowed $50,000 from a bank and signed
a note agreement. What journal entry should Brighton
record?
A. Debit Notes Receivable, $50,000; Credit Cash,
$50,000.
B. Debit Notes Payable, $50,000; Credit Cash,
$50,000.
C. Debit Cash, $50,000; Credit Notes Payable,
$50,000.
D. Debit Cash, $50,000; Credit Notes Receivable,
$50,000. - (Correct Answer)-C. Debit Cash, $50,000; Credit Notes Payable,
$50,000.
On November 1, 2017, Burlingame, Inc. signed a $100,000,
6%, six‐month note payable with the amount borrowed
plus accrued interest due six months later on May 1, 2018.
What is the amount of the adjusting entry for interest
expense on the note at December 31, 2017?
A. Credit $1,000.
B. Debit $3,000
C. Debit $1,000
D. Credit $3,000 - (Correct Answer)-C. Debit $1,000
A contingency is best described as a(n)
a. legal liability.
b. probable liability.
,[Type here]
c. potential liability.
d. estimated liability. - (Correct Answer)-c. potential liability.
Hillsborough, Inc. 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 and reported as a liability
B. Neither disclosed nor reported as a liability
C. Disclosed, but not reported as a liability
D. Reported as a liability, but not disclosed - (Correct Answer)-C. Disclosed, but not reported as
a liability
Kensal Green, Inc. is facing a class‐action lawsuit in the
upcoming year. It is probable that the corporation will have to pay a settlement of approximately
$10,000,000 in the next twelve months. How would this fact be reported, if financial statements
are prepared at the end of the current month?
A. Report $10,000,000 as a current liability and describe
the matter in the notes to the financial statements.
B. Report $10,000,000 as a long‐term liability and describe
the matter in the notes to the financial statements.
C. Describe the potential liability in the notes to the
financial statements.
D. Reporting is not required for this matter - (Correct Answer)-A. Report $10,000,000 as a
current liability and describe the matter in the notes to the financial statements.
Bampton Corporation filed suit against Cambridge, Inc., seeking damages for patent violations.
Cambridge's legal counsel believes it is probable that Cambridge will settle the lawsuit for an
,[Type here]
estimated amount in the range of $500,000 to $1,000,000, with all amounts in the range
considered equally likely. How should Cambridge report this litigation?
A. As a liability for $1,000,000 with disclosure of the range.
B. As a liability for $750,000 with disclosure of the range.
C. As a liability for $500,000 with disclosure of the range.
D. As a disclosure only. No liability is reported. - (Correct Answer)-C. As a liability for $500,000
with disclosure of the range.
Subaru estimates warranty parts & labor costs in
the same year a vehicle is sold. This best follows
which of the following accounting principles?
A. historical cost
B. consistency
C. relevance
D. matching - (Correct Answer)-D. matching
Greenwich, Inc. sells deluxe grass mowers to customers over the internet. History has shown that
5% of Greenwich's mowers will need repair under a warranty program. For the year, Greenwich
has sold 5,000 mowers and 150 have been repaired. If the estimated cost to repair a mower is
$80, what would be the warranty expense for the year?
A. $20,000
B. $25,000
C. $15,000
D. $10,000 - (Correct Answer)-A. $20,000
Greenwich, Inc. sells deluxe grass mowers to customers over the internet. History has shown that
5% of Greenwich's mowers will need repair under the warranty program. For the year,
Greenwich has sold 5,000 mowers and 150 have been repaired. If the estimated cost to repair a
mower is $80, what would be the warranty liability at the end of the year?
A. $ 6,000
, [Type here]
B. $12,000
C. $ 8,000
D. $10,000 - (Correct Answer)-C. $ 8,000
When a gain contingency is probable and the amount
of gain is reasonably estimable, the gain should be
A. Offset against stockholders' equity.
B. Reported in the income statement and
disclosed.
C. Reported in the income statement, but not
disclosed.
D. Disclosed, but not recognized in the income
statement. - (Correct Answer)-D. Disclosed, but not recognized in the income
statement.
Banks will charge a very profitable company a higher
interest rate as compared to a company with minimal
income since the high‐income business will be better
able to pay the extra interest cost.
A. True
B. False - (Correct Answer)-B. False
Liquidity is the ability to earn a satisfactory net income.
A. True
B. False - (Correct Answer)-B. False
AND PRACTICE EXAM QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS) |ALREADY GRADED A
Brighton, Inc. borrowed $50,000 from a bank and signed
a note agreement. What journal entry should Brighton
record?
A. Debit Notes Receivable, $50,000; Credit Cash,
$50,000.
B. Debit Notes Payable, $50,000; Credit Cash,
$50,000.
C. Debit Cash, $50,000; Credit Notes Payable,
$50,000.
D. Debit Cash, $50,000; Credit Notes Receivable,
$50,000. - (Correct Answer)-C. Debit Cash, $50,000; Credit Notes Payable,
$50,000.
On November 1, 2017, Burlingame, Inc. signed a $100,000,
6%, six‐month note payable with the amount borrowed
plus accrued interest due six months later on May 1, 2018.
What is the amount of the adjusting entry for interest
expense on the note at December 31, 2017?
A. Credit $1,000.
B. Debit $3,000
C. Debit $1,000
D. Credit $3,000 - (Correct Answer)-C. Debit $1,000
A contingency is best described as a(n)
a. legal liability.
b. probable liability.
,[Type here]
c. potential liability.
d. estimated liability. - (Correct Answer)-c. potential liability.
Hillsborough, Inc. 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 and reported as a liability
B. Neither disclosed nor reported as a liability
C. Disclosed, but not reported as a liability
D. Reported as a liability, but not disclosed - (Correct Answer)-C. Disclosed, but not reported as
a liability
Kensal Green, Inc. is facing a class‐action lawsuit in the
upcoming year. It is probable that the corporation will have to pay a settlement of approximately
$10,000,000 in the next twelve months. How would this fact be reported, if financial statements
are prepared at the end of the current month?
A. Report $10,000,000 as a current liability and describe
the matter in the notes to the financial statements.
B. Report $10,000,000 as a long‐term liability and describe
the matter in the notes to the financial statements.
C. Describe the potential liability in the notes to the
financial statements.
D. Reporting is not required for this matter - (Correct Answer)-A. Report $10,000,000 as a
current liability and describe the matter in the notes to the financial statements.
Bampton Corporation filed suit against Cambridge, Inc., seeking damages for patent violations.
Cambridge's legal counsel believes it is probable that Cambridge will settle the lawsuit for an
,[Type here]
estimated amount in the range of $500,000 to $1,000,000, with all amounts in the range
considered equally likely. How should Cambridge report this litigation?
A. As a liability for $1,000,000 with disclosure of the range.
B. As a liability for $750,000 with disclosure of the range.
C. As a liability for $500,000 with disclosure of the range.
D. As a disclosure only. No liability is reported. - (Correct Answer)-C. As a liability for $500,000
with disclosure of the range.
Subaru estimates warranty parts & labor costs in
the same year a vehicle is sold. This best follows
which of the following accounting principles?
A. historical cost
B. consistency
C. relevance
D. matching - (Correct Answer)-D. matching
Greenwich, Inc. sells deluxe grass mowers to customers over the internet. History has shown that
5% of Greenwich's mowers will need repair under a warranty program. For the year, Greenwich
has sold 5,000 mowers and 150 have been repaired. If the estimated cost to repair a mower is
$80, what would be the warranty expense for the year?
A. $20,000
B. $25,000
C. $15,000
D. $10,000 - (Correct Answer)-A. $20,000
Greenwich, Inc. sells deluxe grass mowers to customers over the internet. History has shown that
5% of Greenwich's mowers will need repair under the warranty program. For the year,
Greenwich has sold 5,000 mowers and 150 have been repaired. If the estimated cost to repair a
mower is $80, what would be the warranty liability at the end of the year?
A. $ 6,000
, [Type here]
B. $12,000
C. $ 8,000
D. $10,000 - (Correct Answer)-C. $ 8,000
When a gain contingency is probable and the amount
of gain is reasonably estimable, the gain should be
A. Offset against stockholders' equity.
B. Reported in the income statement and
disclosed.
C. Reported in the income statement, but not
disclosed.
D. Disclosed, but not recognized in the income
statement. - (Correct Answer)-D. Disclosed, but not recognized in the income
statement.
Banks will charge a very profitable company a higher
interest rate as compared to a company with minimal
income since the high‐income business will be better
able to pay the extra interest cost.
A. True
B. False - (Correct Answer)-B. False
Liquidity is the ability to earn a satisfactory net income.
A. True
B. False - (Correct Answer)-B. False
