Question 1

A company is legally obligated for the costs associated with the retirement of a long-lived asset

Accepted Answer

A) only when it hires another party to perform the retirement activities. 
B) only if it performs the activities with its own workforce and equipment. 
C) whether it hires another party to perform the retirement activities or performs the activities itself. 
D) only when the obligation arises at the outset of the asset's use. 
A) only when it hires another party to perform the retirement activities. 
B) only if it performs the activities with its own workforce and equipment. 
C) whether it hires another party to perform the retirement activities or performs the activities itself. 
D) only when the obligation arises at the outset of the asset's use.

Question 2

What condition is necessary to recognize an environmental liability?

Accepted Answer

A) Company has an existing legal obligation and can reasonably estimate the amount of the liability. 
B) Company can reasonably estimate the amount of the liability. 
C) Company has an existing legal obligation. 
D) Obligation event has occurred. 
A) Company has an existing legal obligation and can reasonably estimate the amount of the liability. 
B) Company can reasonably estimate the amount of the liability. 
C) Company has an existing legal obligation. 
D) Obligation event has occurred.

Question 3

Each of the following are included in both the current ratio and the acid-test ratio except

Accepted Answer

A) cash. 
B) short-term investments. 
C) net receivables. 
D) inventory. 
A) cash. 
B) short-term investments. 
C) net receivables. 
D) inventory.

Question 4

For purposes of recognizing a provision, "probable" is defined as more likely than not.

Accepted Answer

A) True 
 B)False

Question 5

Constructive obligations, in which the company has created a valid expectation on the part of other parties that it will discharge certain responsibilities, are disclosed in the notes to the financial statements but not recorded.

Accepted Answer

A) True 
 B)False

Question 6

Preference dividends in arrears are not a liability until declared by the Board of Directors, but should be disclosed in the notes to the financial statements.

Accepted Answer

A) True 
 B)False

Question 7

To record an environmental liability, the cost associated with the liability is

Accepted Answer

A) expensed. 
B) included in the carrying amount of the related long-lived asset. 
C) included in a separate account. 
D) None of these answer choices are correct. 
A) expensed. 
B) included in the carrying amount of the related long-lived asset. 
C) included in a separate account. 
D) None of these answer choices are correct.

Question 8

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

Accepted Answer

A) As an asset. 
B) As deferred revenue. 
C) As a disclosure only. 
D) No disclosure or accrual required. 
A) As an asset. 
B) As deferred revenue. 
C) As a disclosure only. 
D) No disclosure or accrual required.

Question 9

The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

Accepted Answer

A) True 
 B)False

Question 10

Provisions are contingent liabilities which are accrued because the likelihood of an unfavorable outcome is

Accepted Answer

A) virtually certain. 
B) greater than 50%. 
C) at least 75%. 
D) possible. 
A) virtually certain. 
B) greater than 50%. 
C) at least 75%. 
D) possible.

Question 11

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

Accepted Answer

A) be accrued during the period when the compensated time is expected to be used by employees. 
B) be accrued during the period following vesting. 
C) be accrued during the period when earned. 
D) not be accrued unless a written contractual obligation exists. 
A) be accrued during the period when the compensated time is expected to be used by employees. 
B) be accrued during the period following vesting. 
C) be accrued during the period when earned. 
D) not be accrued unless a written contractual obligation exists.

Question 12

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

Accepted Answer

A) Intend to refinance the obligation on a long-term basis. 
B) Obligation must be due within one year. 
C) Unconditional right to defer settlement of the liability for at least 12 months. 
D) Subsequently refinance the obligation on a long-term basis. 
A) Intend to refinance the obligation on a long-term basis. 
B) Obligation must be due within one year. 
C) Unconditional right to defer settlement of the liability for at least 12 months. 
D) Subsequently refinance the obligation on a long-term basis.

Question 13

Which of the following is not to be considered considered when evaluating whether or not to record a liability for pending litigation?

Accepted Answer

A) Time period in which the underlying cause of action occurred. 
B) The type of litigation involved. 
C) The probability of an unfavorable outcome. 
D) The ability to make a reasonable estimate of the amount of the loss. 
A) Time period in which the underlying cause of action occurred. 
B) The type of litigation involved. 
C) The probability of an unfavorable outcome. 
D) The ability to make a reasonable estimate of the amount of the loss.

Question 14

Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.

Accepted Answer

A) True 
 B)False

Question 15

A company can exclude a short-term obligation from current liabilities if it intends to refinance the obligation and has an unconditional right to defer settlement of the obligation for at least 12 months following the due date.

Accepted Answer

A) True 
 B)False

Question 16

What is the relationship between current liabilities and a company's operating cycle?

Accepted Answer

A) Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if more). 
B) Current liabilities are the result of operating transactions. 
C) Current liabilities can't exceed the amount incurred in one operating cycle. 
D) There is no relationship between the two. 
A) Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if more). 
B) Current liabilities are the result of operating transactions. 
C) Current liabilities can't exceed the amount incurred in one operating cycle. 
D) There is no relationship between the two.

Question 17

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

Accepted Answer

A) portion of FICA taxes. 
B) and employer's portion of FICA taxes. 
C) portion of FICA taxes, and any mandatory deductions. 
D) portion of FICA taxes and any voluntary deductions. 
A) portion of FICA taxes. 
B) and employer's portion of FICA taxes. 
C) portion of FICA taxes, and any mandatory deductions. 
D) portion of FICA taxes and any voluntary deductions.

Question 18

The ratio of current assets to current liabilities is called the

Accepted Answer

A) current ratio. 
B) acid-test ratio. 
C) current asset turnover ratio. 
D) current liability turnover ratio. 
A) current ratio. 
B) acid-test ratio. 
C) current asset turnover ratio. 
D) current liability turnover ratio.

Question 19

What are compensated absences?

Accepted Answer

A) Unpaid time off. 
B) A form of healthcare. 
C) Payroll deductions. 
D) Paid time off. 
A) Unpaid time off. 
B) A form of healthcare. 
C) Payroll deductions. 
D) Paid time off.

Question 20

Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.

Accepted Answer

A) True 
 B)False

Exam 13: Current Liabilities, Provisions, and Contingencies

A company is legally obligated for the costs associated with the retirement of a long-lived asset

What condition is necessary to recognize an environmental liability?

Each of the following are included in both the current ratio and the acid-test ratio except

For purposes of recognizing a provision, "probable" is defined as more likely than not.

Constructive obligations, in which the company has created a valid expectation on the part of other parties that it will discharge certain responsibilities, are disclosed in the notes to the financial statements but not recorded.

Preference dividends in arrears are not a liability until declared by the Board of Directors, but should be disclosed in the notes to the financial statements.

To record an environmental liability, the cost associated with the liability is

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

The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

Provisions are contingent liabilities which are accrued because the likelihood of an unfavorable outcome is

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

Which of the following is not to be considered considered when evaluating whether or not to record a liability for pending litigation?

Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.

A company can exclude a short-term obligation from current liabilities if it intends to refinance the obligation and has an unconditional right to defer settlement of the obligation for at least 12 months following the due date.

What is the relationship between current liabilities and a company's operating cycle?

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

The ratio of current assets to current liabilities is called the

What are compensated absences?

Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.

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

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