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1. When assessing liabilities and contingencies, a company must consider
various factors. Which of the following is NOT typically considered in
such assessments?
 A) Potential lawsuits
 B) Warranty obligations
 C) Future operating lease payments
 D) Market capitalization
 Answer: D) Market capitalization is not typically considered when
assessing liabilities and contingencies as it relates to the company's value
on the stock market rather than direct financial obligations.
2. A company has issued a bond with a face value of $100,000 at a
discount. Which of the following statements is true regarding the interest
expense recorded over the life of the bond?
 A) It will be equal to the cash interest paid.
 B) It will be less than the cash interest paid.
 C) It will be more than the cash interest paid.
 D) It cannot be determined from the given information.
 Answer: C) The interest expense recorded over the life of a discounted
bond will be more than the cash interest paid because it includes
amortization of the discount.
3. In accounting for receivables, what does the allowance method for
uncollectible accounts represent?
 A) A method to recognize revenue at the point of sale.
 B) A direct write-off method when an account is deemed uncollectible.
 C) An estimation technique to account for future uncollectible accounts.
 D) A specific identification approach to match expenses with revenues.
 Answer: C) The allowance method represents an estimation technique to
account for future uncollectible accounts.
4. When accounting for investments, under what circumstances would an
equity method be appropriate?
 A) When the investor has significant influence over the investee.
 B) When the investment represents less than 20% of voting stock.
 C) When the investment is intended to be held for less than a year.
 D) When the investment is in government bonds.
 Answer: A) The equity method is appropriate when the investor hasÂ
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