Deck 11: Liabilities

Question 1

The company borrowed $1 million on 1 June 2012,with principal and interest to be repaid in 3 years' time.The interest rate is 12%.The effect on the 30 June 2013 financial statements was:

A) an increase in liabilities and a decrease in profit
B) an increase in liabilities but no effect on profit
C) an increase in profit but no effect on liabilities
D) no effect on either profit or liabilities.

Answer 1

A

Question 2

Which of the following is a liability?

A) revenue received in advance
B) accrued revenue
C) prepayments
D) none of the above.

Answer 2

A

Question 3

Which of the following is a liability?

A) unearned revenue
B) reserves
C) accrued revenue
D) prepayments.

Answer 3

A

Question 4

Future warranty costs related to this year's sales will appear in the balance sheet under:

A) an accrual on the balance sheet
B) a provision on the balance sheet
C) a contingent liability on the balance sheet
D) a contingent liability in the notes to the accounts.

Question 5

Which of the following is NOT true? When a liability increases:

A) cash may increase
B) expenses may decrease
C) another liability may decrease
D) expenses may increase.

Question 6

Which of the following would be part of the journal entry on 1 January 2012?

A) DR Discount on bonds $11 471
B) DR Premium on bonds $11 471
C) CR Discount on bonds $11 471
D) CR Premium on bonds $11 471.

Question 7

Amounts owing to an advertising company as per an invoice received would appear on the balance sheet as:

A) accounts payable
B) accruals
C) provisions
D) contingent liability.

Question 8

What would be the debit journal entry to record the sale of the bond on 1 January 2012?

A) DR Cash $88 529
B) DR Cash $100 000
C) DR Bonds $88 529
D) DR Bonds $100 000.

Question 9

Jim Ltd owes $120 000 on its loan and during the next year must make 12 monthly payments of $1500 including interest.If the interest will amount to $10 800 over the next year,his balance sheet will show:

A) a current liability of $18 000
B) accrued interest of $10 800
C) a noncurrent liability of $102 000
D) a current liability of $7200.

Question 10

Dividends declared but not yet paid would be included under:

A) accounts payable
B) accruals
C) provisions
D) contingent liability.

Question 11

Interest owed to the bank by MNO Ltd would appear on MNO's balance sheet as:

A) accounts payable
B) accruals
C) provisions
D) contingent liability.

Question 12

Which of the following is NOT a liability?

A) accrued expenses
B) accrued revenue
C) unearned revenue
D) deferred revenue.

Question 13

What is the interest expense for the first 6 months?

A) $4426
B) $5000
C) $5312
D) $6000.

Question 14

Which of the following items would NOT be recognised as a liability?

A) advances from customers for goods and services to be delivered later
B) warranty on products sold during the year
C) final dividend recommended by directors,prior to the annual meeting
D) a dispute with a customer where there is some possibility that the company could lose the dispute.

Question 15

When a liability increases which of the following is NOT correct?

A) An expense may increase.
B) An asset may increase.
C) Shareholders' equity may increase.
D) Shareholders' equity may decrease.

Question 16

Which of the following CANNOT be a liability?

A) allowance for doubtful debts
B) provision for employee entitlements
C) provision for dividends
D) provision for warranties.

Question 17

Which of the following is NOT a liability?

A) unearned revenue
B) revenue received in advance
C) accrued revenue
D) accrued expenses.

Question 18

An employee earns $800 a week and the following deductions are made: income tax $200,superannuation $40,union dues $20.The journal entry to record this transaction would include:

A) DR Union dues due $20
B) DR Wages expense $530
C) CR Wages payable $800
D) DR Wages expense $800.

Question 19

Which of the following is NOT a liability?

A) provision for warranty
B) reserves
C) accrued expenses
D) revenue received in advance.

Question 20

When unearned revenue increases:

A) cash increases
B) an expense increases
C) an expense decreases
D) revenue increases.

Question 21

As a result of some major excavations this year for mining,PLM Ltd is obliged to carry out land restoration at the end of the excavations.This cost of the restoration will be shown in the balance sheet under:

A) accounts payable
B) accruals
C) provisions
D) contingent liability.

Question 22

When a business acquires the right to use property by way of a finance lease,it will record on the balance sheet as:

A) an asset only
B) an asset and a liability
C) neither an asset nor a liability
D) a footnote only.

Question 23

Which of the following would NOT be shown as a contingent liability?

A) estimated future cost of providing superannuation for work already carried out by employees
B) a dispute with the taxation department where legal advice suggests that the company will win the dispute
C) a company providing a guarantee to a lender for a loan taken out by a subsidiary company where a default on the loan is very unlikely
D) company defending a claim for unspecified damages where the amount of the claim cannot be reliably measured.

Question 24

When a business collects GST from customers,it records:

A) a contra asset
B) a liability
C) an expense
D) an asset.

Question 25

If the lease is treated as a capital lease,what would be the total expense reported in 2009 related to the lease?

A) $20 000
B) $16 012
C) $21 776
D) $32 024.

Question 26

When all the risks and benefits incidental to ownership are substantially transferred to the lessee,the lease is known as a(n):

A) convertible lease
B) operating lease
C) preferential lease
D) finance lease.

Question 27

Which of the following statements relating to a finance lease is NOT true?

A) All risks and benefits incidental to ownership are substantially transferred to the lessee.
B) The present value of future lease payments is recorded as a liability.
C) The leased asset is amortised.
D) Finance leases are nor reported in the balance sheet.

Question 28

The auditors informed the company that the provision for long service leave was understated by $100 000 at 30 June 2012 and that the account should be adjusted.The company adjusted the account so that:

A) liabilities increase and profit decreases
B) liabilities increase but profit is unaffected
C) profit increases but there is no effect on liabilities
D) there is no effect on either profit or liabilities.

Question 29

RST has been sued by a competitor for a potential copyright infringement.Legal advice is divided over the likelihood of the success of the claim and the likely damages,if any.It would be shown as:

A) an accrual on the balance sheet
B) a provision on the balance sheet
C) a contingent liability on the balance sheet
D) a contingent liability in the notes to the accounts.

Question 30

Jones Ltd sold a machine on credit for $11 000 including GST of 10%.The journal entry to record this transaction would include:

A) DR Accounts receivable $11 000
B) CR Sales $11 000
C) DR GST Payable $1000
D) DR Accounts receivable $10 000.

Question 31

Contingent liabilities are:

A) reported as current liabilities
B) reported as noncurrent liabilities
C) reported as either current or noncurrent liabilities,depending on the expected date of payment
D) not reported as liabilities.

Question 32

XYZ Ltd provides a service on credit,charging $2000 + $200 GST.The journal entry would include:

A) DR Accounts receivable $2000
B) CR Sales $2000
C) DR GST Payable $200
D) CR Sales $2200.

Question 33

Which of the following statements relating to operating leases is NOT true?

A) Both assets and lease obligation liabilities are recognised.
B) Lease payments are expensed as rent expense.
C) If they are significant,some particulars may be disclosed in the notes to the financial statements.
D) Non-cancellable operating leases may not be reported in the balance sheet.

Question 34

If the company had recorded the lease as a capital lease instead of an operating lease:

A) total assets and total liabilities would be higher than under an operating lease
B) total assets but not total liabilities would be higher than under an operating lease
C) total liabilities but not total assets would be higher than under an operating lease
D) total assets and total liabilities would be lower than under an operating lease.

Question 35

A contingent liability should be shown by way of a note to the accounts when:

A) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required
B) the amount of the obligation cannot be measured reliably
C) estimation procedures were necessary to determine its amount
D) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required and the amount of the obligation cannot be measured reliably.

Question 36

A retailer buys 200 tables at $550 each (including GST of $50)and sells all of them for $880 each (including GST of $80).How much needs to be remitted to the tax department?

A) $6000
B) $16 000
C) $10 000
D) $15 000.