NEW
Font size
S
M
L
XL
WorksheetsCurrent Liabilities (Valix, 2022)
Total questions: 80
Worksheet time: 40mins
Name
Class
Date
1.
The most common type of liability is
a)
a. One that comes into existence due to a loss contingency.
b)
b. One that must be estimated.
c)
c. One that comes into existence due to a gain contingency.
d)
d. One to be paid in cash and for which the amount and timing are known.
2.
Which is not a characteristic of a liability?
a)
a. It represents a transfer of an economic resource.
b)
b. It must be payable in cash.
c)
c. It arises from present obligation to other entity.
d)
d. It results from past transaction or event.
3.
Classifying liabilities as either current or noncurrent helps creditors assess
a)
a. Profitability
b)
b. The relative risk of an entity's liabilities
c)
c. The degree of an entity's liabilities
d)
d. The amount of an entity's liabilities
4.
Short-term obligations are reported as noncurrent if
a)
a. The entity has a long-term line of credit.
b)
b. The entity has tentative plan to issue long-term bonds payable.
c)
c. The entity has the right at the end of the reporting period to defer settlement of the liability for at least 12 months after the end of the reporting period.
d)
d. The entity has the ability to refinance on a long-term basis.
5.
Which situation would require that noncurrent liabilities be reported as current?
a)
a. The long-term debt is callable by the creditor.
b)
b. The creditor has the right to demand payment due to a contractual violation.
c)
c. The long-term debt matures within the upcoming year.
d)
d. All of these require the current classification.
6.
Which of the following represents a liability?
a)
a. The obligation to pay for goods that an entity expects to order from suppliers next year
b)
b. The obligation to provide goods that customers have ordered and paid for during the current year
c)
c. The obligation to pay interest on a five-year note payable that was issued the last day of the year
d)
d. The obligation to distribute an entity's own shares
7.
Which does not meet the definition of a liability?
a)
a. The signing of a an employment contract at fixed salary
b)
b. An obligation to provide goods or services in the future
c)
c. A note payable with no specified maturity date
d)
d. An obligation that is estimated in amount
8.
Which of the following is a characteristic of a current liability but not a noncurrent liability?
a)
a. Unavoidable obligation.
b)
b. Present obligation to transfer an economic resource.
c)
c. Settlement is expected within the normal operating cycle or within 12 months, whichever is longer.
d)
d. The obligating event has already occurred.
9.
Which of the following is not considered a characteristic of a liability?
a)
a. Present obligation
b)
b. Arises from past event
c)
c. Results in a transfer of economic resource
d)
d. Liquidation is reasonably expected to require use of current assets
10.
Which of the following is not an acceptable presentation of current liabilities?
a)
a. Listing current liabilities in the order of maturity
b)
b. Listing current liabilities according to amount
c)
c. Offsetting current liabilities against assets that are to be applied to their liquidation
d)
d. Showing current liabilities in the order of liquidation preference
11.
Among the short-term obligations at year-end are 90-daynotes, renewable for another 90-day period. What is the classification of the notes payable?
a)
a. Current liabilities
b)
b. Deferred credits
c)
c. Noncurrent liabilities
d)
d. Intermediate debt
12.
At year-end, an entity had 120-day note payable outstanding. The entity has followed the policy of replacing the note rather than repaying it over the last three years. The entity's treasurer says that this policy is expected to continue indefinitely, and the arrangement is acceptable to the bank to which the note was issued. What is the proper classification of the note in the year-end statement of financial position?
a)
a. Dependent on the intention of management
b)
b. Dependent on the actual ability to refinance
c)
c. Current liability, unless specific refinancing criteria are met
d)
d. Noncurrent liability
13.
An entity had a note payable due next year. After the end of reporting period and before the issuance of the current year financial statements, the entity issued long-term bonds payable. Proceeds from the bonds were used to repay the note when due. How should the entity classify the note payable at current year-end?
a)
a. Current liability with separate disclosure of the note refinancing
b)
b. Current liability with no disclosure required
c)
c. Noncurrent liability with separate disclosure of the note refinancing
d)
d. Noncurrent liability with no separate disclosure required
14.
An entity had a loan due for repayment in six months' time, but the entity had the right to defer settlement for two years later. The entity planned to refinance this loan. In which section of the statement of financial position should this loan be presented?
a)
a. Current liabilities
b)
b. Current assets
c)
c. Noncurrent liabilities
d)
d. Noncurrènt assets
15.
At year-end, an entity classified a note payable as current liability. Under what condition could the enticy reclassify the note payable from current to noncurrent?
a)
a. If the entity had the intent and ability to reclassify the note before the end of reporting period.
b)
b. If the entity had executed an agreement to refinance the note before issuance of the financial statements.
c)
c. If the entity had the intent and ability to reclassify the note before the issuance of the financial statements.
d)
d. If the entity had executed an agreement to refinance the note before the end of reporting period.
16.
The most relevant measurement of liabilities at initial recognition should always reflect
a)
a. The expectation of the management
b)
b. Historical cost
c)
c. The credit standing of the entity
d)
d. The single most likely minimum possible amount
17.
Which statement best describes the term liability?
a)
a. An excess of equity over current assets
b)
b. Resources to meet financial commitments when due
c)
c. The residual interest in the assets of the entity
d)
d. A present obligation arising from past event
18.
What is the relationship between present value and the concept of a liability?
a)
a. Present value is used to measure certain liabilities.
b)
b. Present value is not used to measure liabilities.
c)
c. Present value is used to measure all liabilities.
d)
d. Present value is used to measure noncurrent liabilities only.
19.
If a long-term debt becomes callable due to the violation of a loan covenant
a)
a. The debt may continue to be classified as noncurrent if the covenant can be renegotiated.
b)
b. The debt should be reclassified as current.
c)
c. Cash must be reserved to pay the debt.
d)
d. Retained earnings must be restricted.
20.
What is the classification of debt callable by the creditor?
a)
a. Noncurrent liability
b)
b. Current liability
c)
c. Current liability if the creditor intends to call the debt within one year
d)
d. Current liability if it is probable that the creditor will call the debt within one year
21.
An entity received an advance payment for special order goods that are to be manufactured and delivered within six months. How should the advance payment be reported?
a)
a. Deferred credit
b)
b. Contra asset account
c)
c. Current liability
d)
d. Noncurrrent liability
22.
At year-end, an entity sold refundable merchandise coupons. The entity received a certain amount for each coupon redeemable next year for merchandise with a certain retail price. At year-end, how should the entity report these coupon transactions?
a)
a. Unearned revenue at the merchandise's retail price
b)
b. Unearned revenue at the cash received
c)
c. Revenue at the merchandise's price
d)
d. Revenue at the cash received
23.
Advance payments from customers represent
a)
a. Liabilities until the product is provided
b)
b. A component of shareholders' equtiy
c)
c. Assets until the product is provided
d)
d. Revenue upon receipt of the advance payment
24.
All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period?
a)
a. Large increase because unearned revenue becomes revenue when earned
b)
b. Large decrease because unearned revenue implies that less revenue has been earned which reduces future revenue
c)
c. No effect because unearned revenue is a liability
d)
d. Large decrease because unearned revenue indicates collection problems that will reduce net revenue in future period
25.
How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the statement of financial position before the performance?
a)
a. Revenue for the entire proceeds
b)
b. Revenue to the extent of related costs expanded
c)
c. Unearned revenue to the extent of related costs expended
d)
d. Unearned revenue for the entire proceeds
26.
Magazine subscriptions collected in advance should be treated as
a)
a. A contra account to magazine subscriptions receivable
b)
b. Deferred revenue in the liability section
c)
c. Deferred revenue in the shareholders' equity section
d)
d. Magazine subscription revenue in the income statement in the period collected
27.
Under a royalty agreement with another entity, an entity shall receive. royalties from the assignment of a patent for four years. The royalties received in advance should be reported as revenue
a)
a. In the period received
b)
b. In the period earned
c)
c. Evenly over the life of the royalty agreement
d)
d. At the date of the royalty agreement
28.
An entity is a retailer of home appliances and offers a service contract on each appliance sold. Collections received for service contracts should be recorded as an increase in
a)
a. Deferred revenue account
b)
b. Sales contracts receivable valuation account
c)
c. Shareholders' equity valuation account
d)
d. Service revenue account
29.
An entity sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with the entity. Based on experience, warranty costs are expected to be incurred for each machine sold. When should the entity recognize the warranty costs?
a)
a. Evenly over the life of the warranty
b)
b. When the service calls are performed
c)
c.When payments are made to the mechanic
d)
d. When the machines are sold
30.
At the end of the current year, an entity received an advance payment of 60% of the sale price for special order goods to be manufactured and delivered within five months. At the same time, the entity subcontracted for production of the special order goods at a price equal to 40% of the main contract price. What liabilities should be reported in the year-end statement of financial position?
a)
a. None
b)
b. Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to 40% of the main contract price
c)
c. Deferred revenue equal to 60% of the main contract price and no payable to subcontractor
d)
d. No deferred revenue but payable to subcontractor is reported at 40% of the main contract price
31.
The cost of customer premium offer should be charged to expense
a)
a. When the related product is sold.
b)
b. When the premum offer expires.
c)
c. Over the life cycle of the product.
d)
d. When the premium is claimed.
32.
The accounting concept that requires recognition of a liability for customer premium offer is
a)
a. Time period
b)
b. Prudence
c)
c. Historical cost
d)
d. Matching principle
33.
Accounting for cost of incentive program for frequent customer purchases involves
a)
a. Recording an expense and a liability each period.
b)
b. Recording a liability and a reduction of revenue.
c)
c. Recording an expense and an asset reduction.
d)
d. Recording an expense and revenue each period.
34.
Accounting for cost of customer incentive program
a)
a. Requires probability estimation.
b)
b. Follows the matching principle.
c)
c. Is a loss contingency situation.
d)
d. All of these are correct.
35.
Providing a monetary rebate program
a)
a. Is accounted for similarly to a premium offer
b)
b. Creates an expense for the seller in the period of sale.
c)
c. Creates a liability for the seller at the time of sale.
d)
d. Is normally not recognized
36.
What is the accounting for the transaction price of a contract of sale with customer coupons for free product, discount or rebate?
a)
a. Entirely as product sales revenue
b)
b. Allocated to customer options equal to stand-alone selling and the balance to product sales
c)
c. Allocated between product sales revenue and coupons based on stand-alone selling price
d)
d. Entirely as coupon revenue
37.
What is the stand-alone selling price of free product coupons?
a)
a. Nothing
b)
b. Fair value less cost of disposal
c)
c. Selling price of free product
d)
d. Selling price of free pioduct adjusted for expected redemption
38.
What is the stand-alone selling price of discount coupons?
a)
a. Discount on customer purchases during the year
b)
b. Discount on customer future purchases
c)
c. Discount on customer purchases during the year adjusted by expected redemption
d)
d. Discount on customer future purchases adjusted by expected redemption
39.
What is the stand-alone selling price of rebate coupons?
a)
a. Discount on products sold during the current year
b)
b. Discount on products sold during the current year adjusted by expected redemption
c)
c. Cost of products sold
d)
d. Fair value of rebate coupons
40.
The nonredemption of gift certificates is called
a)
a. Breakage
b)
b. Forfeiture
c)
c. Rebate
d)
d. Waiver
41.
The accrual approach in accounting for warranty
a)
a. Is required for income tax reporting.
b)
b. Is frequently justified on the basis of expediency.
c)
c. Finds the expense account being charged when the seller performs in compliance with the warranty.
d)
d. Should be used whenever the warranty is an integral and inseparable part of the sale.
42.
Which of the following best describes the accrual approach of accounting for warranty cost?
a)
a. Expensed when paid
b)
b. Expensed when warranty claims are certain
c)
c. Expensed based on estimate in year of sale
d)
d. Expensed when incurred
43.
Which of the following best describes the expense as incurred approach of accounting for warranty cost?
a)
a. Expensed based on estimate in year of sale
b)
b. Expensed when liability is accrued
c)
c. Expensed when warranty claims are certain
d)
d. Expensed when incurred
44.
What is the classification of the estimated warranty liability in a three-year warranty?
a)
a. Noncurrent
b)
b. Current
c)
c. Partly current and partly noncurrent
d)
d. No need for disclosure
45.
Which of the following is a characteristic of the accrual of warranty but not the sale of warranty?
a)
a. Warranty liability
b)
b. Warranty expense
c)
c. Unearned warranty revenue
d)
d. Warranty revenue
46.
Which is the correct definition of a provision?
a)
a. A possible obligation arising from past events
b)
b. A liability of uncertain timing or uncertain amount
c)
c. A liability which cannot be easily measured
d)
d. An obligation to transfer funds to an entity
47.
A provision shall be recognized when
a)
a. An entity has a present obligation as a result of a past event.
b)
b. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
c)
c. The amount of the obligation can be measured reliably.
d)
d. All of these are required for the recognition of a provision liability.
48.
A legal obligation is an obligation that is derived from all of the following, except
a)
a. Legislation
b)
b. A contract
c)
c. Other operation of law
d)
d. An established pattern of practice
49.
An entity has an established pattern of practice or stated policy that has created valid expectation that it will accept certain financial responsibility.
a)
a. Constructive obligation
b)
b. Legal obligation
c)
c. Onerous obligation
d)
d. Possible obligation
50.
It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation.
a)
a. Obligating event
b)
b. Past event
c)
c. Subsequent event
d)
d. Current event
51.
An outflow of resources embodying economic benefits is regarded as probable when
a)
a. The probability that the event will occur is greaterthan the probability that the event will not occur.
b)
b. The probability that the event will not occur is greater than the probability that the event will occur.
c)
c. The probability that the event will occur is the same as the probability that the event will not occur.
d)
d. The probability that the event will occur is 90% likely.
52.
Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other,the range to be used is the
a)
a.Minimum
b)
b. Maximum
c)
c. Midpoint
d)
d. Summation of the minimum and maximum
53.
When the provision involves a large population of items, the estimate of the amount
a)
a. Reflects the weighting of all possible outcomes bytheir associated probabilities.
b)
b. Is determined as the individual most likely outcome.
c)
c. May be the individual most likely outcome adjusted for the effect of other possible outcomes.
d)
d. Midpoint of the possible outcomes.
54.
When the provision arises from a single obligation, the estimate of the amount
a)
a. Reflects the weighting of all possible outcomes bytheir associated probabilities.
b)
b. Is determined as the individual most likely outcome.
c)
c. Is the individual most likely outcome adjusted for the effect of other possible outcomes.
d)
d. Midpoint of the possible outcomes.
55.
The present value in a range of possible outcomes all discounted using the same rate would be
a)
a. The most-likely outcome
b)
b. The maximum outcome
c)
c. The minimum outcome
d)
d. The sum of probability-weighted present value
56.
A provision shall be recognized for
a)
a. Future operating losses
b)
b. Obligations under insurance contracts
c)
c. Reductions in fair value of financial instruments
d)
d. Obligations for plant decommissioning costs
57.
Provisions shall be recognized for all of the following, except
a)
a. Cleaning-up costs of contaminated land when an oilentity has a published policy that it will undertake toclean up all contamination that it causes.
b)
b. Restructuring costs after a binding sale agreement.
c)
c. Rectification costs relating to products sold.
d)
d. Future refurbishment costs due to introduction of a new computer system.
58.
An entity is closing one of its operating divisions, and the conditions for making restructuring provision have been met. The closure will happen in the first quarter of the next financial year. At the current year-end, the entity has announced the formal plan publicly and is calculating the restructuring provision. Which of the following costs should be included in the restructuring provision?
a)
a. Retraining staff continuing to be employed
b)
b. Relocation costs relating to staff moving to other divisions
c)
c. Contractually required costs of retiring staff being made redundant from the division being closed
d)
d. Future operating losses of the division being closed up to the date of closure
59.
An entity has been served a legal notice at year-end by the Department of Environment and Natural Resources to fit smoke detectors in its factory on or before middle of the next year. The cost of fitting smoke detector can be measured reliably. How should the entity treat this in the financial statements at year-end?
a)
a.Recognize a provision for the current year equal tothe estimated amount.
b)
b. Recognize a provision for the current year equal to one-half only of the estimated amount.
c)
c. No provision is recognized at year-end because there is no present obligation for the future expenditure since the entity can avoid the future expenditure by changing the method of operations, but disclosure is required.
d)
d. Ignore the event.
60.
An entity operates chemical plants. The published policies include a commitment to making good any damage caused to the environment by its operations. The entity has always honored this commitment. Which of the following scenarios relating to the entity would give rise to a provision?
a)
a. On past experience it is likely that a chemical spillwhich would result in having to pay fines and penaltieswill occur in the next year.
b)
b. Recent research suggests there is a possibility that the entity's actions may damage surrounding wildlife.
c)
c. The government has outlined plans for a new law requiring all environmental damage to be rectified.
d)
d. A chemical spill from one of the entity's plants has caused harm to the surrounding area and wildlife.
61.
An entity did not record an accrual for a present obligation but disclose the nature of the obligation and the range of the loss. How likely is the loss?
a)
a. Remote
b)
b. Reasonably possible
c)
c. Probable
d)
d. Certain
62.
The likelihood that the future event will or will not occur can be expressed by a range of outcome. Which range means that the future event occurring is very slight?
a)
a. Probable
b)
b. Reasonably possible
c)
c. Certain
d)
d. Remote
63.
An expropriation of asset which is imminent and for which the amount of loss can be reasonably estimated should be
a)
a. Accrued
b)
b. Disclosed
c)
c. Accrued and disclosed
d)
d. Ignored
64.
A present obligation that is probable and for which the amount can be reliably estimated should
a)
a. Not be accrued but disclosed in the notes to thefinancial statements.
b)
b. Be accrued by debiting an appropriated retained earnings account and crediting a liability account.
c)
c. Be accrued by debiting an expense account and crediting an appropriated retained earnings account.
d)
d. Be accrued by debiting an expense account and crediting a liability account.
65.
General or unspecified contingencies should
a)
a. Be accrued in the financial statements and disclosed.
b)
b. Not be accrued and need not be disclosed.
c)
c. Not be accrued but should be disclosed.
d)
d. Be accrued but need not be disclosed.
66.
Contingent liability will or will not become actual liability depending on
a)
a. Whether probable and measurable.
b)
b. The degree of uncertainty.
c)
c. The present condition.
d)
d. The outcome of a future event.
67.
A contingent liability shall be recognized when
a)
a. Any lawsuit is actually filed against an entity.
b)
b. It is certain that funds are available to pay the amount of the claim.
c)
c. It is probable that a liability has been incurred but the amount cannot be reliably measured.
d)
d. The amount of the loss can be reliably measured and it is probable prior to issuance of financial statements that a liability has been incurred.
68.
How should a contingent liability be reported in the financial statements when it is reasonably possible?
a)
a. As a deferred liability
b)
b. As an accrued liability
c)
c. As a disclosure only
d)
d. As an account payable
69.
Reporting in the financial statements is required for
a)
a. Loss contingency that is probable and measurable
b)
b. Loss contingency that is remote and measurable
c)
c. Loss contingency that is possible and measurable
d)
d. All loss contingencies
70.
A contingent liability
a)
a. Definitely exists as a liability but the amount and duedate are indeterminable.
b)
b. Is accrued even though not reasonably estimated.
c)
c. Is the result of a loss contingeney.
d)
d. Is not recognized in the financial statements.
71.
A contngent liability is
a)
a. An estimated liability.
b)
b. An event which is not recognized because it is not probable that an outflow will be required or the amount cannot be reliably estimáted.
c)
c. A potential large liability.
d)
d. A potential small liability.
72.
A contingent liability
a)
a. Has a most probable value of zero but may require apayment if a given future event occurs.
b)
b. Definitely exists as a liability.
c)
c. Is reported as current liability.
d)
d. Is not disclosed in the financial statements.
73.
Disclosure is usually not required for
a)
a. Probable and measurable contingent gain
b)
b. Possible and measurable contingent loss
c)
c. Probable and immeasurable contingent loss
d)
d. Remote and measurable contingent loss
74.
An entity received notification of legal action. How should the probable and measurable loss be reported?
a)
a. As a loss recorded in other comprehensive income
b)
b. As a loss in the income statement and a contingent liability
c)
c.. As a loss in the income statement and a provision
d)
d. In the notes to financial statements
75.
Which of the following is not considered when evaluating whether or not to record a liability for pending litigation?
a)
a. Time period of the underlying cause of action
b)
b. The type of litigation involved
c)
c. The probability of an unfavorable outcome
d)
d. The ability to make a reliable estimate of the loss
76.
Contingent asset is usually recognized when
a)
a. Realized
b)
b. Occurrence is reasonably possible and the amount can be reliably measured
c)
c. Occurrence is probable and measurable
d)
d. The amount can be reliably measured
77.
Which is the proper treatment of contingent asset?
a)
a. An accrued account
b)
b. Deferred income
c)
c. An account receivable
d)
d. A disclosure only
78.
Gain contingency that is remote and measurable
a)
a. Must be disclosed in a note to financial statements.
b)
b. May be disclosed in a note to financial statements.
c)
c. Must be reported in thé body of the financial statements.
d)
d. Should not be reported or disclosed.
79.
Which is the proper way to report a contingent asset, receipt of which is virtually certain?
a)
a. As an asset
b)
b. As unearned evenue
c)
c. As a disclosure only
d)
d. No disclosure and no accrual
80.
What is the proper treatment of a patent infringement case of the plaintiff with probable favorable outcome and measurable settlement?
a)
a. No reporting is required at this time
b)
b. Disclosure
c)
c. A gain for the minimum settlement
d)
d. A gain for the probable settlement
Reset
