INTACC THEORIES

The most common type of liability is

• One that comes into existence due to a loss contingency.

• One that must be estimated.

• One that comes into existence due to a gain contingency.

• One to be paid in cash and for which the amount and timing are known.

Which is not a characteristic of a liability?

• It represents a transfer of an economic resource.

• It must be paid in cash.

• It arises from present obligation to other entity.

• It results from past event.

Classifying liabilities as either current or noncurrent helps creditors assess

• Profitability

• The relative risk of an entity's liabilities

• The degree of an entity's liabilities

• The amount of an entity's liabilities

Short-term obligations are reported as noncurrent if

• The entity has a long-term line of credit.

• The entity has tentative plan to issue long-term bonds payable.

• The entity has the right at the end of reporting period to defer settlement of liability for at least twelve months after the end of reporting period.

• The entity has the ability to refinance on a long-term basis.

Which situation would not require a noncurrent liability to be reported as current?

• The long-term debit is callable by the creditor.

• The creditor has the right to demand payment due to a contractual violation.

• The long-term debt matures within the upcoming year.

• All of these require the current classification.

Which of the following represents a liability?

• The obligation to pay for goods that an entity expects to order from suppliers next year.

• The obligation to provide goods that customers have ordered and paid for during the current year.

• The obligation to pay interest on a five-year note that was issued the last day of the year.

• The obligation to distribute an entity's own shares.

Which does not meet the definition of a liability?

• The signing of an employment contract at fixed salary.

• An obligation to provide goods or services in the future.

• A note payable with no specified maturity date.

• An obligation that is estimated in amount.

Which of the following is a characteristic of a current liability but not a noncurrent liability?

• Unavoidable obligation

• Present obligation to transfer of an economic resource.

• Settlement is expected within the normal operating cycle or within 12 months, whichever is longer.

• The obligating event has already occurred.

Which is not a characteristic of a liability?

• Present obligation

• Arises from past event

• Results in a transfer of economic resource

• Liquidation is reasonably expected to require use of current asset.

Which of the following is not an acceptable presentation of current liabilities?

• Listing current liabilities in the order of maturity.

• Listing current liabilities according to amount.

• Offsetting current liabilities against current assets.

• Showing current liabilities in the order of liquidation.