Deck 12: Liabilities and Provisions

Question 1

Quasi-liabilities are obligations for which of the following?

A) The triggering event may not come from a transaction with a third party
B) The timing of the obligation may not be clear
C) The amount may not be well defined
D) Any combination of the three previous answers

Answer 1

D

Question 2

For the IASB,a provision should be recognized when:

A) An entity has a present obligation as a result of a past event.
B) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
C) A reliable estimate can be made of the amount of the obligation.
D) All of these.

Answer 2

D

Question 3

Which of the following items is not a current liability?

A) Notes payable
B) Income taxes payable
C) Accounts payable
D) Inventories

Answer 3

D

Question 4

What is the term used for the amount that will be given to the bondholder on the date of redemption?

A) Principal
B) Face value
C) Maturity value
D) All of these.

Question 5

Contingent liabilities are recognized in the balance sheet.

Question 6

Which of the following examples does not constitute a situation in which a provision for restructuring is created?

A) Sale or termination of a line of business.
B) Changes in management structure,for example,eliminating a layer of management.
C) Litigation with one of the major customers.
D) Fundamental reorganizations that have a material effect on the nature and focus of the entity's operations.

Question 7

In which way(s)may the settlement of a present obligation occur?

A) Payment of cash
B) Transfer of assets other than cash
C) Provision of services
D) All of these.

Question 8

Which of the following statements is not correct?

A) A bond is a certificate allowing the division of a debt between large numbers of investors,each of whom can contribute only a small amount of the debt.
B) If the face value of a bond is important,it makes this lending instrument accessible to a large public.
C) The bond or certificate shows the evidence of the claim held by the bondholder.
D) In the aggregate the bond issue may represent a very large amount of borrowed funds to cover all or part of the company's financing needs.

Question 9

A provision is an obligation that could eventually be reversed because some degree of estimation is involved in its amount and timing.

Question 10

A business's financing needs come essentially from:

A) Growth.
B) The operating cycle.
C) Temporary imbalances in the equilibrium between the various components of the operating cycle.
D) A combination of the three previous factors.

Question 11

Given the following data:
What is recorded in the balance sheet at the time of the first payment?

A)

B)

C)

D)

Question 12

Which of the following items is not part of working capital?

A) Trade payables
B) Cash
C) Trade receivables
D) Accruals for employee

Question 13

Liabilities (in the strict sense)are equivalent to:

A) Provisions.
B) Accrued liabilities.
C) Contingent liabilities.
D) None of these

Question 14

Accrued liabilities are the results of both the accrual process and the time lag between an event and its complete resolution in the course of the cycle of operations.

Question 15

What is the term used for the types of bonds which are all repaid in fine?

A) Term bonds
B) Serial bonds
C) Maturity bonds
D) Installment bonds

Question 16

Which of the following events is not a past event generating a liability?

A) Purchase of raw materials on credit
B) Receipt of a bank loan
C) Acquisition of goods paid on delivery
D) Receipt of prepayment for services

Question 17

Long-term liabilities are generally divided between two categories.What are these categories?

A) Bank borrowings and private borrowings
B) Bank borrowings and bonds
C) Bank borrowings and bank loans
D) Public bonds and private bonds

Question 18

How are liabilities reported in the balance sheet?

A) Distinguishing current and non-current liabilities.
B) Distinguishing short-term and long-term liabilities.
C) Distinguishing interest-bearing and non-interest-bearing liabilities.
D) All of these.

Question 19

Who can be liability funds providers?

A) Financial institutions
B) Suppliers
C) Tax authorities
D) All of these.

Question 20

If the discount is 'with recourse',the discount mechanism for notes creates:

A) A provision
B) A contingent liability
C) An accrued liability
D) None of these

Question 21

How is the debt ratio calculated?

A) Total assets/Total debt
B) Total debt/Total assets
C) Debt/Shareholders' equity
D) Long-term debt/Shareholders' equity

Question 22

In accounting terms,wages and salaries are handled differently.

Question 23

What is included in post-employment benefits?

A) Pensions.
B) Post-employment life insurance.
C) Post-employment medical care.
D) All of these

Question 24

Which element(s)regarding the finance leases should be disclosed?

A) For each class of asset,the net carrying amount at the balance sheet date.
B) Contingent rents recognized in income for the period.
C) Reconciliation between the total of future minimum lease payments at the balance sheet date,and their present value.
D) All of these

Question 25

Which of the following items is not considered to be payroll taxes?

A) Employer's portion of social security
B) Unemployment taxes
C) Employer's portion of employees' life insurance premiums
D) Workers' compensation taxes

Question 26

A major difference between IFRS 16 and IAS 17 is that the new standard introduces a single lessee accounting model,abandoning the distinction between operating lease and finance lease.

Question 27

IAS 17 recommends that finance leases be recognized as assets and liabilities on the statement of financial position/balance sheet.Such recording of finance leases is often known as the ____ of the leased asset.

A) Recognition
B) Incorporation
C) Capitalization
D) Reservation

Question 28

The selling price of a bond should be equal to the present value of the future cash flows the lender will receive,i.e. ,all the interest payments and the reimbursement of the principal.In this computation,which interest rate (also called discount)is used?

A) The inflation rate
B) The market rate of interest at the issue date for like instruments with similar risk.
C) Bank rate
D) None of these

Question 29

If the assumed discount rate is 6% and the stated rate is 8%,the bonds will sell:

A) At par value.
B) At a discount.
C) At a premium.
D) None of these

Question 30

What is the term IAS 17 uses for a lease that transfers substantially all the risks and rewards incidental to ownership of an asset?

A) Simple lease
B) Finance lease
C) Operating lease
D) Legal lease

Question 31

IFRS 16,which supersedes IAS 17,is applicable for accounting periods on or after:

A) 1 January 2016
B) 1 January 2017
C) 1 January 2018
D) 1 January 2019

Question 32

Which of the following items is not considered a fringe benefit?

A) Vacation pay
B) Employer's portion of social security
C) Employer's share of employees' pension contributions
D) Employer's portion of employees' health insurance premiums

Question 33

Which of the following statements is not correct?

A) Employers pay salaries or wages to their employees in exchange for their labor.
B) Salaries are paid on a periodic basis as a fixed installment of an agreed upon total amount defined as the remuneration for the person making her or his services available to the employer for an agreed upon annual number of hours.
C) Salaries are dependent on the level of occupation the employer will be able to provide.
D) Wages refer to the payment of an amount defined by an agreed hourly rate or piecework applied to the actual number of units of labor provided during the period for which the wages are calculated.

Question 34

Under IFRS 16,all leases must adopt the treatment formerly adopted for operating leases.

Question 35

Under IAS 17,which of the following examples is not a situation that would normally lead to a lease being classified as a finance lease?

A) The leased assets are useful for the lessee.
B) The lease transfers ownership of the asset to the lessee by the end of the lease term.
C) The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain,at the inception of the lease,that the option will be exercised.
D) The lease term is for the major part of the economic life of the asset even if the title is not transferred.