CURRENT LIABILITIES

1. Which is not an essential characteristic of an accounting liability?

(a) The liability is the present obligation of a particular enterprise.
(b) The liability arises from past transaction or event.
(c) The settlement of the liability requires an outflow of resources
embodying economic benefits. (d) The liability is payable to a
specifically identified payee.

2. Current liabilities include:

(a) only obligations which are expected to be settled within the normal operating cycle.
(b) only obligations which are due to be settled within one year from balance sheet date.
(c) obligations which are expected to be settled within the normal operating cycle and
obligations which are due to be settled within one year from balance sheet date.
(d) refinanced long-term debt falling due within one year from balance sheet.

3. A long-term debt falling due within one year should be reported as noncurrent liability should be
reported as noncurrent liability if the following conditions are met (choose the incorrect one):
(a) The original term is for a period of more than one year.
(b) The enterprise intends to refinance the obligation on a long-term basis.
(c) The intent to refinance is supported by an agreement to refinance which is completed
before the issuance of the financial statements.
(d) The intent to refinance is supported by an agreement to refinance which is completed after
the issuance of the financial statements.

4. Which will demonstrate an agreement to refinance (choose the incorrect one)?

(a) Long-term obligation has in fact been issued before the issuance of the financial statements
for the purpose of refinancing.
(b) Equity security has in fact been issued before the issuance of the financial statements for the
purpose of refinancing. (c) Before the issuance of the financial statements, the enterprise has in
fact entered into a financing agreement that clearly permits the enterprise to refinance the
currently maturing long-term debt on a long-term basis.
(d) Preferred stock has in fact been issued before the issuance of financial statements for the
purpose of obtaining working capital.

5. Some obligations that are due to be repaid within the next operating cycle and expected to be
refinanced or “rolled over” should be classified as noncurrent:
(a) If the refinancing or “rolling over” is at the discretion of the enterprise and the refinancing
agreement has been reached before the issuance of the statements.
(b) If the refinancing or “rolling over” is at the discretion of the enterprise regardless of whether
a refinancing agreement has been reached or not before the issuance of the statements.
(c) If the refinancing or “rolling over” is not at the discretion of the enterprise.
(d) Subject to no conditions.

6. Covenants are often attached to long-term borrowing agreements which represent undertakings by
the borrower. Under these covenants, if certain, conditions related to the borrower’s financial
position are breached, the liability becomes payable on demand. This liability can still be
classified as noncurrent:
(a) when the lender has agreed, prior to the issuance of the statements, not to demand payment.
(b) when it is probable that further breaches or violations will not occur within one year from
balance sheet date. (c) when the lender has agreed prior to the issuance of the statements not to
demand payment and it is probable that further breaches will not occur within one year from
balance sheet date.
 (d) with no conditions.

7. What is an obligation that definitely exists but the amount of which is uncertain?
(a) contingent liability (c) provision
(b) unearned revenue (d) discounted note payable

8. A provision is recognized as liability when (choose the incorrect one):

(a) the enterprise has a present obligation as a result of past event.
(b) the enterprise has a possible obligation as a result of past event.
(c) it is probable that a transfer of economic benefits will be required to settle the obligations.
(d) the amount of the obligations can be measured reliably.

9. If the present obligation is not probable or measurable, it is considered as:

(a) contingent liability. (c) contingent asset.
(b) provision. (d) noncurrent liability.

10. Which item is not a current liability?

(a) unearned revenue
(b) stock dividends distributable
(c) the currently maturing portion of long-term debt
(d) trade accounts payable