1. Which of the following is a characteristic of a liability?
A. It must require a sacrifice of economic resources.
B. It may be the result of future transactions.
C. The exact amount due must be known.
D. It may be avoidable.
2. Which of the following liabilities would be valued at their present value?
A. Unearned revenue
B. Operating bank loan
C. Future taxes
D. 10-year mortgage
3. All of the following liabilities would be valued at their present value except?
A. Bonds payable
B. Pension obligations
C. Unearned revenue
D. 10-year mortgage
4. Chi Consulting purchased a new computer system and in return signed a three-year $30,000 non-interest-bearing note payable. An investigation by the company's accountant revealed that similar notes have market rates of interest around 8%. At what value should the note payable be initially recorded on Chi's financial statements?
A. $30,000
B. $10,000
C. $25,771
D. $23,815
$30,000/(1.08)3
= $23,815
5. A company bought an asset and signed a four-year non-interest-bearing note for the full amount. If the note were recorded at its face value, which of the following statements would be true?
A. Only liabilities will be understated.
B. Only liabilities will be overstated.
C. Both assets and liabilities will be overstated.
D. Both assets and liabilities will be understated.
6. According to IFRS, all of the following are characteristics of a liability except:
A. obligations to provide goods or services to a third party.
B. obligations arising from past transactions.
C. events that will require sacrificing economic resources to settle.
D. obligations that will be settled with current assets.
7. Failure to record a liability will probably:
A. result in overstated total liabilities and shareholders' equity.
B. result in overstated net earnings.
C. have no effect on net earnings.
D. result in overstated total assets.
8. All of the following statements about current liabilities are true except?
A. Current liabilities are valued at their present value.
B. Current liabilities are important for assessing short-term liquidity.
C. Current liabilities will be satisfied in a year or one operating cycle.
D. The difference between the present value and the face value of a current liability is small.
9. Which of the following most likely would be classified as a current liability?
A. Dividends payable
B. Bonds payable
C. Three-year notes payable
D. Mortgage payable
10. All of the following are current liabilities except?
A. Demand loan
B. Line of credit
C. Mortgage
D. Income taxes payable