MGMT 200 FINAL EXAM (PURDUE UNIVERSITY) NEWEST 2025 FINAL
EXAM, PRACTICE EXAM AND STUDY GUIDE QUESTIONS AND
CORRECT DETAILED ANSWERS (VERIFIED ANSWERS) |ALREADY
GRADED A+.
Question 1
Which of the following is not a characteristic of a liability?
A) It represents a probable, future sacrifice of economic benefits.
B) It arises from present obligations to other entities.
C) It results from past transactions or events.
D) It is always a current obligation.
E) It must be payable in cash.
Correct Answer: E) It must be payable in cash.
Rationale: Liabilities represent future sacrifices of economic benefits, but they do not
necessarily have to be payable in cash; they could be satisfied by providing goods or
services.
Question 2
On November 1, 2024, a company signed a $100,000, 6%, six-month note payable with the
amount borrowed plus accrued interest due six months later on May 1, 2025. The company
recorded accrued interest on December 31, 2024. What effect does recording accrued interest
have on the financial statements in 2024?
A) Assets increase and stockholders' equity decreases.
B) Assets increase and liabilities increase.
C) Assets increase and expenses increase.
D) Liabilities increase and assets decrease.
E) Liabilities increase and expenses increase.
Correct Answer: E) Liabilities increase and expenses increase.
Rationale: Accrued interest means interest has been incurred but not yet paid. This
increases Interest Payable (a liability) and increases Interest Expense.
Question 3
Which of the following are employer payroll costs?
I. FICA taxes
II. Federal and state unemployment taxes
III. Federal and state income taxes
IV. Employer contributions to a retirement plan
A) I and IV
B) II and III
C) I, III, and IV
D) II, III, and IV
E) I, II, and IV
Correct Answer: E) I, II, and IV
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Rationale: Employer payroll costs include FICA taxes (employer's portion), federal and
state unemployment taxes, and employer contributions to retirement plans. Federal and
state income taxes are withheld from employee's pay, not paid by the employer as an
additional cost.
Question 4
Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour.
Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65%
and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the actual
payroll payment (salaries payable) for the first week of January?
A) $13,923
B) $5,157
C) $18,000
D)
17,000𝐸) ∗∗
12,843**
Correct Answer: E) $12,843
Rationale: Total gross pay = 15 employees * 40 hours/week * $30/hour = $18,000.
Federal income tax withheld = 15% * $18,000 = $2,700.
State income tax withheld = 6% * $18,000 = $1,080.
Employee FICA tax withheld = 7.65% * $18,000 = $1,377.
Actual payroll payment (Salaries Payable) = $18,000 - $2,700 - $1,080 - $1,377 = $12,843.
Question 5
Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour.
Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65%
and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the
employer's total payroll tax expense for the first week of January?
A) $1,377
B) $3,141
C) $684
D)
4,500𝐸) ∗∗
2,061**
Correct Answer: E) $2,061
Rationale: Employer FICA tax expense = 7.65% * $18,000 (gross pay) = $1,377.
Employer unemployment tax expense = 3.8% * $18,000 (since $18,000 is less than $7,000
per employee threshold * 15 employees = $105,000 total threshold) = $684.
Total employer payroll tax expense = $1,377 (FICA) + $684 (Unemployment) = $2,061.
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Question 6
In January 2024, Summit Department Store sells a gift card for $65 and receives cash. In
February 2024, the customer comes back and spends $35 of the gift card to purchase a water
bottle. What is the financial statement effect of the sale of the gift card in January?
A) Increase assets by $65 and increase stockholders' equity by $65.
B) Increase assets by $35, decrease liabilities by $30, and increase stockholders' equity by $65.
C) Increase assets by $35, increase liabilities by $65, and decrease stockholders' equity by $30.
D) Decrease assets by $65 and decrease liabilities by $65.
E) Increase assets by $65 and increase liabilities by $65.
Correct Answer: E) Increase assets by $65 and increase liabilities by $65.
Rationale: When a gift card is sold, the company receives cash (an asset increases), but has
an obligation to provide goods or services in the future. This obligation is recorded as
unearned revenue (a liability increases).
Question 7
The current portion of long-term debt should be:
A) Reported as a long-term liability in the balance sheet.
B) Combined with the rest of the long-term debt in the balance sheet.
C) Paid immediately.
D) Disclosed only in the notes to the financial statements.
E) Reported as a current liability in the balance sheet.
Correct Answer: E) Reported as a current liability in the balance sheet.
Rationale: The current portion of long-term debt represents the amount due within one
year or the operating cycle, whichever is longer, and thus is classified as a current liability.
Question 8
Reeves Company filed suit against Higgins, Incorporated, 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 $180,000 to $280,000, with all amounts in the range considered
equally likely. How should Higgins report this litigation?
A) As a liability for $280,000 with disclosure of the range.
B) As a liability for $230,000 with disclosure of the range.
C) In a disclosure only; no liability is reported.
D) As a liability for $0 as it's an estimate.
E) As a liability for $180,000 with disclosure of the range.
Correct Answer: E) As a liability for $180,000 with disclosure of the range.
Rationale: When a loss is probable and a range of amounts can be reasonably estimated, but
no single amount within the range is a better estimate than others, GAAP requires the
minimum amount in the range to be recorded as a liability, with disclosure of the full
range.
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Question 9
While providing services to Palmer Company, Raider Group caused damages of $125,000. As of
the end of the year, both parties agree that it is probable that Raider will pay Palmer the full
amount of the damages within the next two months. How would Raider and Palmer report the
lawsuit at the end of the year?
A) Raider reports nothing; Palmer reports nothing.
B) Raider reports nothing; Palmer reports a gain.
C) Raider reports a gain; Palmer reports a loss.
D) Raider reports a loss; Palmer reports nothing.
E) Raider reports a gain; Palmer reports nothing.
Correct Answer: D) Raider reports a loss; Palmer reports nothing.
Rationale: Raider (the one paying) would record a probable loss (and corresponding
liability). Palmer (the one receiving) cannot recognize a gain until it is realized or virtually
certain, which is a higher threshold than "probable."
Question 10
Carpenter Incorporated estimates warranty expense at 2% of sales. Sales during the year were $4
million and warranty expenditures during the year were $44,000. What was the balance in the
Warranty Liability account at the end of the year?
A) $44,000
B) $80,000
C) $480,000
D)
124,000𝐸) ∗∗
36,000**
Correct Answer: E) $36,000
Rationale: Estimated warranty expense = 2% * $4,000,000 = $80,000.
Warranty expenditures (cash paid) = $44,000.
Ending Warranty Liability = Estimated expense - Expenditures = $80,000 - $44,000 =
$36,000.
Question 11
A series of equal periodic payments is referred to as:
A) The time value of money.
B) The future value.
C) Interest.
D) A lump sum.
E) An annuity.
Correct Answer: E) Annuity.
Rationale: An annuity is defined as "A series of equal periodic payments."
EXAM, PRACTICE EXAM AND STUDY GUIDE QUESTIONS AND
CORRECT DETAILED ANSWERS (VERIFIED ANSWERS) |ALREADY
GRADED A+.
Question 1
Which of the following is not a characteristic of a liability?
A) It represents a probable, future sacrifice of economic benefits.
B) It arises from present obligations to other entities.
C) It results from past transactions or events.
D) It is always a current obligation.
E) It must be payable in cash.
Correct Answer: E) It must be payable in cash.
Rationale: Liabilities represent future sacrifices of economic benefits, but they do not
necessarily have to be payable in cash; they could be satisfied by providing goods or
services.
Question 2
On November 1, 2024, a company signed a $100,000, 6%, six-month note payable with the
amount borrowed plus accrued interest due six months later on May 1, 2025. The company
recorded accrued interest on December 31, 2024. What effect does recording accrued interest
have on the financial statements in 2024?
A) Assets increase and stockholders' equity decreases.
B) Assets increase and liabilities increase.
C) Assets increase and expenses increase.
D) Liabilities increase and assets decrease.
E) Liabilities increase and expenses increase.
Correct Answer: E) Liabilities increase and expenses increase.
Rationale: Accrued interest means interest has been incurred but not yet paid. This
increases Interest Payable (a liability) and increases Interest Expense.
Question 3
Which of the following are employer payroll costs?
I. FICA taxes
II. Federal and state unemployment taxes
III. Federal and state income taxes
IV. Employer contributions to a retirement plan
A) I and IV
B) II and III
C) I, III, and IV
D) II, III, and IV
E) I, II, and IV
Correct Answer: E) I, II, and IV
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Rationale: Employer payroll costs include FICA taxes (employer's portion), federal and
state unemployment taxes, and employer contributions to retirement plans. Federal and
state income taxes are withheld from employee's pay, not paid by the employer as an
additional cost.
Question 4
Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour.
Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65%
and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the actual
payroll payment (salaries payable) for the first week of January?
A) $13,923
B) $5,157
C) $18,000
D)
17,000𝐸) ∗∗
12,843**
Correct Answer: E) $12,843
Rationale: Total gross pay = 15 employees * 40 hours/week * $30/hour = $18,000.
Federal income tax withheld = 15% * $18,000 = $2,700.
State income tax withheld = 6% * $18,000 = $1,080.
Employee FICA tax withheld = 7.65% * $18,000 = $1,377.
Actual payroll payment (Salaries Payable) = $18,000 - $2,700 - $1,080 - $1,377 = $12,843.
Question 5
Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour.
Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65%
and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the
employer's total payroll tax expense for the first week of January?
A) $1,377
B) $3,141
C) $684
D)
4,500𝐸) ∗∗
2,061**
Correct Answer: E) $2,061
Rationale: Employer FICA tax expense = 7.65% * $18,000 (gross pay) = $1,377.
Employer unemployment tax expense = 3.8% * $18,000 (since $18,000 is less than $7,000
per employee threshold * 15 employees = $105,000 total threshold) = $684.
Total employer payroll tax expense = $1,377 (FICA) + $684 (Unemployment) = $2,061.
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Question 6
In January 2024, Summit Department Store sells a gift card for $65 and receives cash. In
February 2024, the customer comes back and spends $35 of the gift card to purchase a water
bottle. What is the financial statement effect of the sale of the gift card in January?
A) Increase assets by $65 and increase stockholders' equity by $65.
B) Increase assets by $35, decrease liabilities by $30, and increase stockholders' equity by $65.
C) Increase assets by $35, increase liabilities by $65, and decrease stockholders' equity by $30.
D) Decrease assets by $65 and decrease liabilities by $65.
E) Increase assets by $65 and increase liabilities by $65.
Correct Answer: E) Increase assets by $65 and increase liabilities by $65.
Rationale: When a gift card is sold, the company receives cash (an asset increases), but has
an obligation to provide goods or services in the future. This obligation is recorded as
unearned revenue (a liability increases).
Question 7
The current portion of long-term debt should be:
A) Reported as a long-term liability in the balance sheet.
B) Combined with the rest of the long-term debt in the balance sheet.
C) Paid immediately.
D) Disclosed only in the notes to the financial statements.
E) Reported as a current liability in the balance sheet.
Correct Answer: E) Reported as a current liability in the balance sheet.
Rationale: The current portion of long-term debt represents the amount due within one
year or the operating cycle, whichever is longer, and thus is classified as a current liability.
Question 8
Reeves Company filed suit against Higgins, Incorporated, 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 $180,000 to $280,000, with all amounts in the range considered
equally likely. How should Higgins report this litigation?
A) As a liability for $280,000 with disclosure of the range.
B) As a liability for $230,000 with disclosure of the range.
C) In a disclosure only; no liability is reported.
D) As a liability for $0 as it's an estimate.
E) As a liability for $180,000 with disclosure of the range.
Correct Answer: E) As a liability for $180,000 with disclosure of the range.
Rationale: When a loss is probable and a range of amounts can be reasonably estimated, but
no single amount within the range is a better estimate than others, GAAP requires the
minimum amount in the range to be recorded as a liability, with disclosure of the full
range.
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Question 9
While providing services to Palmer Company, Raider Group caused damages of $125,000. As of
the end of the year, both parties agree that it is probable that Raider will pay Palmer the full
amount of the damages within the next two months. How would Raider and Palmer report the
lawsuit at the end of the year?
A) Raider reports nothing; Palmer reports nothing.
B) Raider reports nothing; Palmer reports a gain.
C) Raider reports a gain; Palmer reports a loss.
D) Raider reports a loss; Palmer reports nothing.
E) Raider reports a gain; Palmer reports nothing.
Correct Answer: D) Raider reports a loss; Palmer reports nothing.
Rationale: Raider (the one paying) would record a probable loss (and corresponding
liability). Palmer (the one receiving) cannot recognize a gain until it is realized or virtually
certain, which is a higher threshold than "probable."
Question 10
Carpenter Incorporated estimates warranty expense at 2% of sales. Sales during the year were $4
million and warranty expenditures during the year were $44,000. What was the balance in the
Warranty Liability account at the end of the year?
A) $44,000
B) $80,000
C) $480,000
D)
124,000𝐸) ∗∗
36,000**
Correct Answer: E) $36,000
Rationale: Estimated warranty expense = 2% * $4,000,000 = $80,000.
Warranty expenditures (cash paid) = $44,000.
Ending Warranty Liability = Estimated expense - Expenditures = $80,000 - $44,000 =
$36,000.
Question 11
A series of equal periodic payments is referred to as:
A) The time value of money.
B) The future value.
C) Interest.
D) A lump sum.
E) An annuity.
Correct Answer: E) Annuity.
Rationale: An annuity is defined as "A series of equal periodic payments."
