Question 36 (1.5 points)

Rightway, Inc. sells rotisserie cookers with a 1 year embedded warranty. During 2020, Rightway sold 500 cookers. They estimate that 5% of the cookers will need warranty service during the first year of ownership. When a cooker needs warranty service, the average cost is $100. The effect of the adjusting entry that is needed for warranties at the end of 2020 will cause which of the following?

Question 36 options:

1)

Total assets to increase by $2,500

2)

Net income to decrease by $2,500

3)

Total liabilities to decrease by $2,500

4)

Stockholders equity to increase by $2,500

Question 37 (1.5 points)

Which of the following criteria is NOT used to determine whether to account for a lease as a finance lease or an operating lease?

Question 37 options:

1)

The asset transfers ownership automatically at the end of the lease.

2)

There is a bargain purchase option at the end of the lease.

3)

The lease lasts for less than one year.

4)

The lease term is most of the useful life of the asset.

Question 38 (1.5 points)

Accounts receivable are listed on the balance sheet according to GAAP at which of the following values?

Question 38 options:

1)

Net Realizable Value

2)

Cost

3)

Cost less accumulated depreciation

4)

Fair Market Value

Question 39 (1.5 points)

When using the allowance method for accounting for bad debts, the write off of an accounts receivable when a customer cannot pay will affect the financial statements of the company taking the write off in what way?

Question 39 options:

1)

Expenses will be increased at the time of the write off

2)

Assets will be decreased at the time of the write off

3)

Assets will be increased at the time of the write off

4)

There will be no change to total assets or total equity at the time of the write off

Question 40 (1.5 points)

According to the FASB, what are the two criteria that a loss contingency must meet before it needs to be reported on the balance sheet?

Question 40 options:

1)

Reasonably possible and estimated.

2)

Probable and reasonably estimated.

3)

Remote and reasonably estimated.

4)

Likely and a certain amount.