Professional Documents
Culture Documents
1. A present obligation of the entity arising from past events, the settlement of which is expected to
result in an outflow from the enterprise of resources embodying economic benefits
a. Payables c. Current Liability
b. Liability d. Non-current Liability
3. A liability that is expected to be settled in the norm al course of the enterprise's operating cycle or is
due to be settled within twelve months of the balance sheet date.
a. Trade accounts Payable c. Current Liabilities
b. Trade Notes Payable d. Non-current liabilities
5. Short-term obligations arising from the normal operating cycle which are evidenced by written
promises to pay.
a. Acceptances payable c. Estimated Liabilities
b. Trade Notes Payable d. Accrued expenses payable
6. Arise when, before the corresponding liability to the bank is paid, the goods are released to the buyer
in behalf of the bank which advanced the money for importation
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
7. Obligation supported by drafts drawn by the supplier on the purchaser of goods and accepted by such
purchaser.
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
8. Liabilities for expenses incurred on or before the balance sheet date but payable at a later date
usually to specific persons, the amount determinable with reasonable accuracy.
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
9. Accrued liabilities which can be determined only approximately or the specific persons to whom
payment will be made may not be identified definitely but the existence of the liability is certain
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
10. Cash dividends that have been declared but not yet paid as the balance sheet date.
a. Dividends in arrears c. Stock dividends payable
b. Scrip dividends payables d. Cash dividends payable
11. Arise from advance payments received from regular customers for merchandise to be delivered or
services to be performed in the future, or from overpayments, errors and other causes.
a. Customers' accounts with credit balance c. Advances payable
b. Accounts Payable d. Deposits payable
12. Consists of cash or property received but which are returnable to the depositor or which have been
collected or otherwise accumulated to be remitted to third parties.
a. Customers' accounts with credit balance c. Advances payable
b. Accounts Payable d. Deposits payable
13. Consist of billed or uncollected revenues that are not recognized as income pending completion of
the earning process.
a. Estimated Liabilities c. Contingent Liabilities
b. Deferred Liabilities d. Deferred Credits
14. Portion of bonds, mortgages and other long-term indebtedness which are to be paid within one year
from the balance sheet date and which are not payable out of the special retirement fund or from the
proceeds of a new bond issue or by conversion into capital stock.
a. Current maturities of long-term debts c. Current Liabilities
b. Non-current liabilities d. Deferred Liabilities
15. Obligation extending beyond the current operating cycle or one year, whichever is longer, or
through payable within one year will not be liquidated out of the existing current assets.
a. Current maturities of long-term debts c. Current Liabilities
b. Non-current liabilities d. Deferred Liabilities
a. A decision by management of an entity to acquire assets in the future gives rise to a present
obligation.
b. An obligation may be extinguished by a creditor waiving or forfeiting its rights
c. Payables arising from the normal course of business due under customary trade terms not
exceeding one year are stated at their maturity values
d. All the above are correct statements
21. Of the following items, which one should be classified as a current liability?
22. If the present value of a note issued in the exchange for a plant asset is less than its face amount, the
difference should be
a. Included in the costs of the asset
b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d. Included in interest expense in the year of issuance
23. Manila Company issued a note in exchange for cash solely. Assuming that the items below differ in
amount, the present value of the note at issuance is equal to the
a. face amount
b. face amount, discounted at the prevailing interest rate for similar notes
c. proceeds received
d. proceeds received, discounted at prevailing interest rate
25. Rent revenue collected one month in advance should be accounted for as
a. revenue in the month collected
b. current liability
c. a separate item in the equity section
d. an accrued liability
28. An overstatement of reported earnings may result from the failure to record
a. dividends in arrears on preferred stock outstanding
b. an accrued liability
c. amortization of premium on bonds payable
d. a contingent liability
29. Calculation of the amount of the equal periodic payments which would be equivalent to a year 0
outlay of P1,000 is most readily affected by reference to a table which shows the
a. Amount of 1 c. Amount of an annuity of 1
b. Present value of 1 d. Present value of an annuity of 1
30. An unpaid workmen's compensation claim against his employer for injuries sustained in an accident
which has already occurred is an example of a (an)
a. contingent loss c. contingent liability
b. anticipated loss d. estimated liability
Bonds Payable
a) A bond is a whole unit issued to a single person while a promissory note is subdivided into
fractional parts sold to many different entities.
b) Bonds will sell at a discount if their interest rate is higher than the prevailing market rate
c) Effective interest on bonds is arrived at by multiplying the stated rate by the bond carrying
value at the beginning of the period
d) Reacquired bonds held for future reissue (called treasury bonds) should be presented as a
contra-account in the long term liabilities section of the balance sheet
a) The bonds outstanding method refers to the amortization procedure for serial bonds utilizing
the compound-interest method.
b) The conversion of bonds to capital stock will not result in any gain or loss if the book value
method is used
c) Bond sinking fund represents an appropriation of retained earnings for the purpose of avoiding
the impairment of working capital
d) All the above statements are not true
3. The presence of an unamortized debt premiums indicates that at the time of issuance the underlying
obligations
a. carried interest at the prevailing market rate
b. carried interest below prevailing market rate
c. carried interest above prevailing market rate
d. was non-interest bearing
4. When all bonds mature at a single date they are called
a. straight bonds c. debenture bonds
b. serial bonds d. coupon bonds
5. Unamortized debt discount should be reported on the balance sheet of the issuer as
a. direct deduction form the face amount of the debt
b. direct addition to the face amount of the debt
c. deferred charges
d. part of the issue costs
6. Columbia Company issued bonds with a maturity amount of P200,000 and a maturity of ten years
from date of issue. If the bonds were issued at a premium, this indicates that
a. the yield (effective or market ) rate of interest exceeded the nominal (or coupon ) rate.
b. the nominal rate of interest exceeded the yield rate
c. the yield rate and nominal rate of interest coincided
d. no necessary relationship exists between the two rates
7. If bonds are initially issued at a discount and the straight line method of amortization is issued,
interest expense in the earlier years
a. will exceed that which would have been had the scientific or compound interest method
of amortization been used
b. will be less than what it would have been had the scientific method of amortization
been used.
c. will be the same as what would have been had the scientific method of amortization
been used
d. will be less than the coupon rate of interest
11. In theory (disregarding any other marketplace variables) the proceeds from sale of a bond will be
equal to
a. present value of the principal amount due at the end of the life of the bond plus the
present value of the interest payments made during the life of the bond, each
discounted at the prevailing market rate of interest
b. the face amount of the bonds
c. the face amount of the bonds plus the present value of the interest payments made
during the life of the bond discounted at the prevailing market rate of interest
d. the sum of the face amount of the bond and the periodic interest payments
12. The stated interest rate on the face of a debt instrument affects the issue price of the instrument. If
the instrument is issued at a discount (assuming no other market place variable), the prevailing market
rate of interest is
13. Theoretically, a bond payable should be reported at the present value of the principal plus the
present value of the interest discounted at the
14. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight premium
should be
a. charged to retained earning when the bonds are issued.
b. expensed in the year in which incurred
c. capitalized as organization costs
d. reported on the balance sheet as an asset and amortized over the ten year bond term
15. For a bond payable with a term of 20 years, originally issued at a discount and outstanding for 10
years, the theoretically preferred presentation in the statement of the financial position is the
16. ABC Corporation issued on December 31, 2008, P 800,000 of ten year general mortgage bonds at
105. The premium on the said bonds should be presented in the company's balance sheet at December
31, 2008 as
a. part of additional paid in capital
b. part of retained earnings
c. deferred credit
d. addition to bonds payable
1. A situation where the creditor for economic or legal reasons related to the debtor's financial
difficulties grants a concession to the debtor that it would not otherwise consider.
2. The deliberate non-disclosure by companies of all their debt in order to make their financial position
look stronger
3. Wholly owned subsidiaries created by parent companies to assist in their financing activities.
6. A debtor that transfers assets to a creditor to fully settle a payable usually will recognize
7. A debtor that grants an equity interest to the investor as a substitute for a liability
a. Must recognize a gain or loss on the issuance of its capital stock.
b. Must not recognize a gain or loss on the issuance of its capital stock.
c. Must recognize a loss but not a gain on the issuance of its capital stock.
d. some other answers
Answer Key:
1. b
2. c
3.a
4. a
5. b
6. b
7. a
8. d
9. c
10. d
11. a
12. d
13. d
14. a
15. b
16. d
17. a
18. a
19. a
20. b
21. b
22. b
23. c
24. a
25. b
26. d
27. d
28. b
29. d
30. d
31. a
Bonds Payable
1. d
2. b
3. c
4. a
5. a
6. b
7. a
8. b
9. d
10. d
11. a
12. b
13. b
14. d
15. c
16. d
Other Long Term Debts
1. a
2. b
3. c
4. d
5. c
6. d
7. c
8. d