Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021,

Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021?

A) $2,250.

B) $3,375.

C) $5,625.

D) None, all expected returns from warranties have been received.

Answer: B

In 2021, a company estimates that warranty costs in the following year will be $25,000. Actual warranty costs in 2022 are only $20,000. What is the effect on the accounting equation when recording actual warranty costs in 2022?

A) Stockholders' equity decreases.

B) Stockholders' equity increases.

C) Liabilities increase.

D) Liabilities decrease.

Answer: D

Patriot Paddleboards sells a paddleboard model that carries a one-year warranty on all included accessories. Past experience indicates that 15% of those sold will have defective accessories within a year and that average repair cost is $20 per paddleboard. If 1,000 were sold this year and 50 have already been repaired under warranty, the entry to record warranty expense for the year would include a debit to:

A) Warranty Expense of $2,000.

B) Warranty Liability of $2,000.

C) Warranty Liability of $3,000.

D) Warranty Expense of $3,000.

Answer: D

Bears Inc. sells football helmets to local schools and warrants all of its products for one year. While no helmets sold in 2021 have been returned yet, based upon previous years, Bears Inc.

Bears Inc. sells football helmets to local schools and warrants all of its products for one year. While no helmets sold in 2021 have been returned yet, based upon previous years, Bears Inc. estimates that 3% of its products will need repairs or be replaced within the next year. What effect would this warranty have on assets, liabilities, and stockholders' equity in 2021?

A) A decrease in assets and decrease in stockholders' equity.

B) No journal entry is necessary until products under warranty are returned.

C) An increase in stockholders' equity and a decrease in liabilities.

D) A decrease in stockholders' equity and an increase in liabilities.

Answer: D

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.

Answer: C

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.

Answer: B

Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it will win the case and will be awarded the full amount.

Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it will win the case and will be awarded the full amount. Amplify, Inc. feels it is probable that it will lose the case and pay Sound City the full amount. Which of the following is correct?

A) Amplify, Inc. would record a loss and contingent liability for $50,000.

B) Sound City would record a gain and lawsuit receivable for $50,000.

C) Sound City would record nothing.

D) Amplify, Inc. would record a loss and contingent liability for $50,000 Sound City would record nothing.

Answer: D

Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what is the effect in the balance sheet?

A) Record decrease stockholders' equity and increase liabilities.

B) Record increase stockholders' equity and decrease liabilities.

C) Disclose no effect in the balance sheet.

D) Disclose decrease stockholders' equity and decrease liabilities.

Answer: C

A company has two active lawsuits at the end of the year. In Lawsuit 1, the company feels it is probable that it will win $10,000. In Lawsuit 2, the company feels that it is probable that it will lose $6,000. At the end of the year, the company should report a:

A) Net gain for $4,000.

B) Loss for $6,000.

C) Net Loss for $4,000.

D) Gain for $10,000.

Answer: B

Universal Travel, Inc. borrowed $500,000 on November 1, 2021, and signed a twelve-month note bearing interest at 6%.

Universal Travel, Inc. borrowed $500,000 on November 1, 2021, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2022. In connection with this note, Universal Travel, Inc. should record interest expense in 2022 in the amount of:

A) $8,000.

B) $30,000.

C) $5,000.

D) $25,000.

Answer: D

Large, highly-rated firms sometimes sell commercial paper:

A) To borrow funds at a lower rate than through a bank.

B) To borrow funds when they cannot obtain a loan from a bank.

C) Because they can't borrow anywhere else.

D) To improve their credit rating.

Answer: A

An informal agreement that allows a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork is known as:

A) A line of credit.

B) Commercial Paper.

C) A debt covenant.

D) Working capital.

Answer: A

The Pita Pit borrowed $100,000 on November 1, 2021, and signed a six-month note bearing interest at 12%. Principal and interest are payable

The Pita Pit borrowed $100,000 on November 1, 2021, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2022. In connection with this note, The Pita Pit should report interest expense at December 31, 2021, in the amount of: (Do not round your intermediate calculations.)

A) $0.

B) $1,000.

C) $2,000.

D) $6,000.

Answer: C

The Pita Pit borrowed $100,000 on November 1, 2021, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2022. In connection with this note, The Pita Pit should report interest expense in 2022 for the amount of:

A) $0.

B) $4,000.

C) $2,000.

D) $6,000.

Answer: B

Universal Travel, Inc. borrowed $500,000 on November 1, 2021, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2022. In connection with this note, Universal Travel, Inc. should report interest payable at December 31, 2021, in the amount of: (Do not round your intermediate calculations.)

A) $8,000.

B) $30,000.

C) $5,000.

D) $25,000.

Answer: C

During the first two years, Supplies, Inc. drove the company truck 15,000 and 22,000 miles, respectively,

During the first two years, Supplies, Inc. drove the company truck 15,000 and 22,000 miles, respectively, to deliver merchandise to its customers. The company originally purchased the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles, and an estimated residual value of $25,000, what amount of depreciation expense should Supplies, Inc. record in the second year using the activity-based method?

A) $11,000.

B) $18,500.

C) $7,500.

D) $16,000.

Answer: A

A company purchased a piece of equipment for $50,000 and the equipment has an expected useful life of five years. Its residual value is estimated to be $4,000. Assuming the company uses the double-declining-balance depreciation method, what is the depreciation expense for the equipment for the second full year?

A) $9,200.

B) $9,040.

C) $12,000.

D) $11,040.

Answer: C

On January 1, 2021, a company purchased a machine that cost $500,000 and had a residual value of $50,000. The machine is expected to produce 360,000 units and is estimated to last 10 years. If 25,000 units were produced in 2022 and 35,000 were produced in 2023, what amount of accumulated depreciation is reported at the end of 2022 using the activity-based method (rounded to the nearest whole dollar if necessary)?

A) $43,750.

B) $90,000.

C) $75,000.

D) $31,200.

Answer: C

Bio-Lab Pharmaceuticals was engaged in a project to develop a new drug that would dramatically shorten the recovery period of influenza

Bio-Lab Pharmaceuticals was engaged in a project to develop a new drug that would dramatically shorten the recovery period of influenza. The project cost the company $150,000 before Bio-Lab abandoned the project due to the slim possibility to gain FDA approval. Bio-Lab then spent $300,000 on another project to develop a shot that would achieve the same goal, and the company is confident in gaining FDA approval and in generating profits from the shot. What amount would be expensed for these projects?

A) $0.

B) $150,000.

C) $300,000.

D) $450,000.

Answer: D

Research and development costs should be capitalized when the:

A) Future benefit is probable and the amount can be reasonably estimated.

B) Future benefit is reasonably possible and the amount can be reasonably estimated.

C) Future benefit is probable and the amount cannot be reasonably estimated.

D) None of these answer choices are correct.

Answer: D

Aspen, Inc. developed a new horse transport device and incurred research and development costs of $250,000. Rather than continue with its own research, Aspen decided to purchase a patent for a similar design from Vail, Inc. for $350,000. What are the total assets and expenses for these developments?

A) Assets $600,000 Expenses $0.

B) Assets $250,000 Expenses $350,000.

C) Assets $350,000 Expenses $250,000.

D) Assets $0 Expenses $600,000.

Answer: C