St. Leo MBA 560 Module 4 Quiz 1. Recognize the liability and report it on the balance sheet. Provide

St. Leo MBA 560 Module 4 Quiz 1.   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 source transaction. (Sample Answer) asset use transaction. asset exchange transaction. claims exchange transaction.   4. A current asset 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? Row Assets = Liabilities + Equity Revenue – Expenses = Net Inc. Cash One (578) = (476) + (102) NA – 102 = (102) (476)FA/(102)OA Two 578 = 578 + NA NA – NA = NA 578FA Three (578) = (578) + NA NA – NA = NA (578)FA Four (578) = (476) + (50) NA – 50 = (50) (476)FA/(50)OA (Points : 2) Row One Row Two Row Three Row Four   9. Liquidity refers to a company s ability to: (Points : 2) sell inventory in a timely manner. generate profits from operations. repay liabilities in the long run.generate cash flows to pay current liabilities. (Sample Answer)   10. On January 1, 2010, Hays Corporation arranged a $3,000 line of credit with the Barnett Bank. It agreed to accept the bank’s offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and payments on principal are to take place on January 1 of each year. Hays began its loan transactions with Barnett Bank by borrowing $1,000 on January 1, 2010. On January 1, 2011, Hays borrowed an additional $1,000 from Barnett Bank, bringing the total amount borrowed to $2,000. On January 1, 2012, Hays paid $500 on the principal of the loan. On December 31, 2012, Hays records the 2012 interest payment. The prime rate for 2012 was 5%. Which of the following answers shows the effect of the 2012 interest payment on the financial statements? Row Assets = Liabilities + Equity Revenue – Expenses = Net Inc. Cash One (75) = (75) + NA NA – NA = NA (75) FA   Two (75) = NA + (75) NA – 75 = (75) (75) OA Three (90) = (90) + NA NA – NA = NA (90) FA Four (90) = NA + (90) NA – 90 = (90) (90) OA (Points : 2) Row One Row Two Row Three Row Four   11. Flynn Company issued 2,000 shares of $10 par value common stock at a market price of $16. As a result of this accounting event, total paid-in capital would: (Points : 2) increase by $12,000. be unaffected by the event. increase by $32,000. increase by $20,000.   12.The price-earnings ratio is the: (Points : 2) total average stockholder’s equity divided by the number of shares. interest rate on borrowed money divided by the current prime rate. price of a company’s products as compared to its net income. market price of a share of stock divided by the earnings per share.   13. Reissuance of treasury stock for cash is what kind of transaction? (Points : 2) Asset source Asset use Asset exchange Claims exchange   14. Which form of business organization is established as a separate legal entity from its owners? (Points : 2) Sole proprietorship Corporation Partnership None of the above   15. The difference between the corporate form of business organization and other forms is most clearly shown in which of the following sections of the financial statements? (Points : 2) Equity section of the balance sheet Expenses section of the income statement Assets section of the balance sheet Operating activities section of the statement of cash flows   16. Purchase of treasury stock for cash is what kind of transaction? (Points : 2) Asset source Asset use Asset exchange Claims exchange   17. Which of the following would not be a reason for the market price of Bishop Corporation stock to decrease? (Points : 2) Bishop s net income for the current year was lower than last year. The general condition and future outlook of the economy are shaky. There has been a recent decrease in key interest rates. Investors expect Bishop s financial performance to decline in the future.   18. The issuance of a stock dividend will: (Points : 2) not affect total equity. increase retained earnings. decrease total paid-in capital. decrease net income.   19.Madison Company paid dividends of $3,000, $6,000, and $10,000 during 2008, 2009, and 2010 respectively. The company had 500 shares of preferred stock outstanding with a $10 per share cumulative dividend. The amount of dividends received by the common shareholders during 2010 would be: (Points : 2) $6,000 $5,000 $3,000 $4,000   20. What kind of transaction is the declaration of a stock dividend? (Points : 2) Asset source transaction Claims exchange transaction Asset use transaction Asset exchange transaction  

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