Prelim Exam
1. The most common type of liability is
a. One that comes into existence due to a loss contingency
b. one that must be estimated
c. One that comes into existence due to a gain contingency
d. One to be paid in cash and for which the amount and timing are known
2. Which is not characteristics of a liability
a. It represents a transfer of an economic resource.
b. It must be payable in cash.
c. it arises from present obligation to other entity
d. It results from past transaction or event.
3. Classifying liabilities as either current or noncurrent helps creditors assess
a. Profitability
b. The relative risk of an entity's liabilities
c. The degree of an entity's liabilities
d. The amount of an entity's liabilities
4. Short-term obligations are reported as noncurrent if
a. The entity has a long-term line of credit
b. The entity has tentative plan to issue long term bonds
c. The entity has the discretion to refinance as long term.
d. The entity has the ability to refinance on a long term basis.
5. Which situation would not require that noncurrent liabilities be reported as
current?
a. The long-term debt is callable by the creditor
b. The creditor has the right to demand payment due to a contractual violation.
c. The long-term debt matures within the upcoming year.
d. All of these require the current classification
6. Which of the following represents a liability?
a. The obligation to pay for goods that an entity expects to order from supplier next year.
b. The obligation to provide goods that customers have ordered and paid for during the
current year
c. The obligation to pay interest on a five-year note payable that was issued the last day of
the year.
d. The obligation to distribute an entity's own shares.
7. Which does not meet the definition of a liability?
a. The signing of an employment contract a fixed salary
b. An obligation to provide goods or services in the future
c. A note payable with no specified maturity date
d. An obligation that is estimated in amount.
, 8. Which of the following characteristic of a current liability but not a noncurrent
liability?
a. Unavoidable obligation
b. Present obligation to transfer an economic resource.
c. Settlement is expected within the normal operating cycle or within 12 months, whichever
is longer.
d. The obligating event has already occurred.
9. Which of the following is not considered a characteristic of a liability?
a. Present obligation
b. Arises from past event
c. Result in a transfer of economic resource
d. Liquidation is reasonably expected to require use of current assets.
10. Which of the following is not acceptable presentation of current liabilities?
a. Listing current liabilities in the order of maturity
b. Listing Current liabilities according to amount
c. Offsetting current liabilities against assets that are to be applied to their liquidation
d. Showing current liabilities in the order of liquidation preference
11. The cost of customer premium offer should be charged to expense
a. When the related product is sold.
b. When premium offer expires.
c. Over the life cycle of the product to which the premium relates.
d. When the premium is claimed.
12. The accounting concept that requires recognition of a liability for customer
premium offer is
a. Time period
b. Prudence
c. Historical cost
d. Matching Principle
13. The accrual approach in accounting for warranty
a. is required for income tax reporting.
b. is frequently on the basis of expediency.
c. Finds the expense account being charged when the seller performs in compliance with the
warranty.
d. Represents accepted practice and should be used whenever the warranty is an integral
and inseparable part of the sales
14. Which of the following best describes the accrual approach of accounting for
warranty cost?
a. Expensed when paid
b. Expensed when warranty claims are certain
c. Expensed based on estimate in year of sale
d. Expensed when Incurred
1. The most common type of liability is
a. One that comes into existence due to a loss contingency
b. one that must be estimated
c. One that comes into existence due to a gain contingency
d. One to be paid in cash and for which the amount and timing are known
2. Which is not characteristics of a liability
a. It represents a transfer of an economic resource.
b. It must be payable in cash.
c. it arises from present obligation to other entity
d. It results from past transaction or event.
3. Classifying liabilities as either current or noncurrent helps creditors assess
a. Profitability
b. The relative risk of an entity's liabilities
c. The degree of an entity's liabilities
d. The amount of an entity's liabilities
4. Short-term obligations are reported as noncurrent if
a. The entity has a long-term line of credit
b. The entity has tentative plan to issue long term bonds
c. The entity has the discretion to refinance as long term.
d. The entity has the ability to refinance on a long term basis.
5. Which situation would not require that noncurrent liabilities be reported as
current?
a. The long-term debt is callable by the creditor
b. The creditor has the right to demand payment due to a contractual violation.
c. The long-term debt matures within the upcoming year.
d. All of these require the current classification
6. Which of the following represents a liability?
a. The obligation to pay for goods that an entity expects to order from supplier next year.
b. The obligation to provide goods that customers have ordered and paid for during the
current year
c. The obligation to pay interest on a five-year note payable that was issued the last day of
the year.
d. The obligation to distribute an entity's own shares.
7. Which does not meet the definition of a liability?
a. The signing of an employment contract a fixed salary
b. An obligation to provide goods or services in the future
c. A note payable with no specified maturity date
d. An obligation that is estimated in amount.
, 8. Which of the following characteristic of a current liability but not a noncurrent
liability?
a. Unavoidable obligation
b. Present obligation to transfer an economic resource.
c. Settlement is expected within the normal operating cycle or within 12 months, whichever
is longer.
d. The obligating event has already occurred.
9. Which of the following is not considered a characteristic of a liability?
a. Present obligation
b. Arises from past event
c. Result in a transfer of economic resource
d. Liquidation is reasonably expected to require use of current assets.
10. Which of the following is not acceptable presentation of current liabilities?
a. Listing current liabilities in the order of maturity
b. Listing Current liabilities according to amount
c. Offsetting current liabilities against assets that are to be applied to their liquidation
d. Showing current liabilities in the order of liquidation preference
11. The cost of customer premium offer should be charged to expense
a. When the related product is sold.
b. When premium offer expires.
c. Over the life cycle of the product to which the premium relates.
d. When the premium is claimed.
12. The accounting concept that requires recognition of a liability for customer
premium offer is
a. Time period
b. Prudence
c. Historical cost
d. Matching Principle
13. The accrual approach in accounting for warranty
a. is required for income tax reporting.
b. is frequently on the basis of expediency.
c. Finds the expense account being charged when the seller performs in compliance with the
warranty.
d. Represents accepted practice and should be used whenever the warranty is an integral
and inseparable part of the sales
14. Which of the following best describes the accrual approach of accounting for
warranty cost?
a. Expensed when paid
b. Expensed when warranty claims are certain
c. Expensed based on estimate in year of sale
d. Expensed when Incurred
