Question 1

A provision differs from other liabilities in that there is greater uncertainty about the timing and amount of settlement.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following situations may give rise to unearned revenue?

Accepted Answer

A) Providing trade credit to customers. 
B) Selling inventory. 
C) Selling magazine subscriptions. 
D) Providing manufacturer warranties. 
A) Providing trade credit to customers. 
B) Selling inventory. 
C) Selling magazine subscriptions. 
D) Providing manufacturer warranties.

Question 3

Under what conditions is an employer required to accrue a liability for sick pay?

Accepted Answer

A) Sick pay benefits can be reasonably estimated. 
B) Sick pay benefits vest. 
C) Sick pay benefits equal 100% of the pay. 
D) Sick pay benefits accumulate. 
A) Sick pay benefits can be reasonably estimated. 
B) Sick pay benefits vest. 
C) Sick pay benefits equal 100% of the pay. 
D) Sick pay benefits accumulate.

Question 4

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a characteristic of an assurance-type warranty, but not a service-type warranty?

Accepted Answer

A) Warranty liability. 
B) Warranty expense. 
C) Unearned warranty revenue. 
D) Warranty revenue. 
A) Warranty liability. 
B) Warranty expense. 
C) Unearned warranty revenue. 
D) Warranty revenue.

Question 6

Expected future operating losses can generally be accrued as part of a restructuring provision.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is the proper way to report a probable contingent asset?

Accepted Answer

A) As an accrued amount. 
B) As deferred revenue. 
C) As an account receivable with additional disclosure explaining the nature of the contingency. 
D) As a disclosure only. 
A) As an accrued amount. 
B) As deferred revenue. 
C) As an account receivable with additional disclosure explaining the nature of the contingency. 
D) As a disclosure only.

Question 8

What does the current ratio inform you about a company?

Accepted Answer

A) The extent of slow-moving inventories. 
B) The efficient use of assets. 
C) The company's liquidity. 
D) The company's profitability. 
A) The extent of slow-moving inventories. 
B) The efficient use of assets. 
C) The company's liquidity. 
D) The company's profitability.

Question 9

Current liabilities are usually recorded and reported in financial statements at their full maturity value.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) Unavoidable obligation. 
B) Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. 
C) Settlement is expected within the normal operating cycle, or within 12 months after the reporting date. 
D) Transaction or other event creating the liability has already occurred. 
A) Unavoidable obligation. 
B) Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. 
C) Settlement is expected within the normal operating cycle, or within 12 months after the reporting date. 
D) Transaction or other event creating the liability has already occurred.

Question 11

Which of the following is not a correct statement about sales taxes?

Accepted Answer

A) Sales taxes are an expense of the seller. 
B) Many companies record sales taxes in the sales account. 
C) If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. 
D) All of these answer choices are true. 
A) Sales taxes are an expense of the seller. 
B) Many companies record sales taxes in the sales account. 
C) If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. 
D) All of these answer choices are true.

Question 12

The numerator of the acid-test ratio consists of

Accepted Answer

A) total current assets. 
B) cash and short-term investments. 
C) cash and net receivables. 
D) cash, short-term investments, and net receivables. 
A) total current assets. 
B) cash and short-term investments. 
C) cash and net receivables. 
D) cash, short-term investments, and net receivables.

Question 13

Magazine subscriptions and airline ticket sales both result in unearned revenues.

Accepted Answer

A) True 
 B)False

Question 14

Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty.

Accepted Answer

A) True 
 B)False

Question 15

A company has not declared a dividend on its cumulative preference shares for the past three years.What is the required accounting treatment or disclosure in this situation?

Accepted Answer

A) Record a liability for cumulative amount of preference shares dividends not declared. 
B) Disclose the amount of the dividends in arrears. 
C) Record a liability for the current year's dividends only. 
D) No disclosure or recognition is required. 
A) Record a liability for cumulative amount of preference shares dividends not declared. 
B) Disclose the amount of the dividends in arrears. 
C) Record a liability for the current year's dividends only. 
D) No disclosure or recognition is required.

Question 16

How do you determine the acid-test ratio?

Accepted Answer

A) The sum of cash and short-term investments divided by short-term debt. 
B) Current assets divided by current liabilities. 
C) Current assets divided by short-term debt. 
D) The sum of cash, short-term investments and net receivables divided by current liabilities. 
A) The sum of cash and short-term investments divided by short-term debt. 
B) Current assets divided by current liabilities. 
C) Current assets divided by short-term debt. 
D) The sum of cash, short-term investments and net receivables divided by current liabilities.

Question 17

Contingent assets need not be disclosed in the financial statements or the notes thereto if they are considered?

Accepted Answer

A) Virtually certain. 
B) Probable. 
C) Likely. 
D) Possible but not probable. 
A) Virtually certain. 
B) Probable. 
C) Likely. 
D) Possible but not probable.

Question 18

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs.Any liability for the warranty

Accepted Answer

A) should be reported as non-current. 
B) should be reported as current. 
C) should be reported as part current and part non-current. 
D) need not be disclosed. 
A) should be reported as non-current. 
B) should be reported as current. 
C) should be reported as part current and part non-current. 
D) need not be disclosed.

Question 19

Which of the following is a current liability?

Accepted Answer

A) A long-term debt maturing currently, which is to be paid with cash in a sinking fund 
B) A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue 
C) A long-term debt maturing currently, which is to be converted into ordinary shares 
D) None of these answer choices are correct. 
A) A long-term debt maturing currently, which is to be paid with cash in a sinking fund 
B) A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue 
C) A long-term debt maturing currently, which is to be converted into ordinary shares 
D) None of these answer choices are correct.

Question 20

What is the relationship between present value and the concept of a liability?

Accepted Answer

A) Present values are used to measure certain liabilities. 
B) Present values are not used to measure liabilities. 
C) Present values are used to measure all liabilities. 
D) Present values are only used to measure non-current liabilities. 
A) Present values are used to measure certain liabilities. 
B) Present values are not used to measure liabilities. 
C) Present values are used to measure all liabilities. 
D) Present values are only used to measure non-current liabilities.

Exam 13: Current Liabilities, Provisions, and Contingencies

A provision differs from other liabilities in that there is greater uncertainty about the timing and amount of settlement.

Which of the following situations may give rise to unearned revenue?

Under what conditions is an employer required to accrue a liability for sick pay?

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

Which of the following is a characteristic of an assurance-type warranty, but not a service-type warranty?

Expected future operating losses can generally be accrued as part of a restructuring provision.

Which of the following is the proper way to report a probable contingent asset?

What does the current ratio inform you about a company?

Current liabilities are usually recorded and reported in financial statements at their full maturity value.

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

Which of the following is not a correct statement about sales taxes?

The numerator of the acid-test ratio consists of

Magazine subscriptions and airline ticket sales both result in unearned revenues.

Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty.

A company has not declared a dividend on its cumulative preference shares for the past three years.What is the required accounting treatment or disclosure in this situation?

How do you determine the acid-test ratio?

Contingent assets need not be disclosed in the financial statements or the notes thereto if they are considered?

Which of the following is a current liability?

What is the relationship between present value and the concept of a liability?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Non-Current Liabilities

Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Presentation and Disclosure in Financialreporting

Filters