Liabilities

Question 1

A current liability is a liability that can reasonably be expected to be paid:
a. Within one year or within the operating cycle (whichever is the longer)
b. between 6 months and 18 months
c. Out of currently recognised revenues
d. Out of cash currently on hand

Answer 1

a. Within one year or the operationg cycle

Question 2

Interest expense on an interest-bearing note is:
a. Always eqaul to 0
b. Only recorerded at the tie the note is issued
c. Accrued over the life of the note
d. Only recorded at the maturity when the note is paid

Answer 2

c. Accrued over the life of the note

Question 3

The current portion of non-current liabilities should:
a. be paid immediately
b. be classified as a longterm liabilitiy
c. to be reclassified as a current liability
d. Not be seperated from the long-term portion of liabilities

Answer 3

c. To be reclassified as a current liability

Question 4

Liabilities for which the amount of the future sacrifice is uncertain are regarded as:
a. Warranties
b.Withholdings
c. Redeemables
d. provisions

Answer 4

d. Provisions

Question 5

Obligations to pay for goods or services that have been provided but for which a suppliers invocie has not yet been recieved:
a. debentures
b. Accounts payable
c. warranties
d. Contingencies

Answer 5

b. Accounts payable

Question 6

Obligations for which the amount of future sacrifice is so uncertain that it cannot be measured reliably are classifed as:
a. Warranties
b. Contingent Liabilities
c. Provisions
d. Accruals

Answer 6

b. Contingent Libailities

Question 7

Which of the following is not an example of a provision?
a. Warranty for a motor vehicle repairs
b. Employee long service leave entitlements
c. Debentures issued
d. Employee annual leave entitlements

Answer 7

c. Debentures issued

Question 8

Which of the following is an exampe of a contingent liability?
a. Legal procedings against the business for a damages claim
b. Warranties for repairs
c. debentures payable
d. Mortagage owing

Answer 8

a. Legal procedings against the business for a damages claim

Question 9

Infromation about contingent liabilities may be found in a companies financial statements in the:
a. Statement of financial postion
b. Income statement
c. Notes
d. Statment of changes in equity

Answer 9

Notes

Question 10

Warranty claim entries

Answer 10

Warranty provisions Dr Full amount
specfic account/s used Cr

Warranty expense Dr Full amount
Warranty provisions Cr Full amount

Question 11

. Most companies pay current liabilities:

Answer 11

. out of current assets.

Question 12

Which of the following most likely would be classified as a current liability?
a. mortgage payable.
b. bonds payable.
c. three-year notes payable.
d. accounts payable.

Answer 12

*d. accounts payable.

Question 13

Notes payable usually require the borrower to pay:

Answer 13

interest.

Question 14

The account ‘Revenue received in advance’ is properly treated as a/an:

Answer 14

liability.

Question 15

On 1 January 2023 Bradley Ltd, a calendar-year company, issued $200,000 of notes
payable of which $50,000 is due on 1 January for each of the next four years. The proper
statement of financial position for presentation on 31 December 2023 is:
a. Current liabilities, $200,000
b. Non-current liabilities, $200,000
c. Current liabilities, $50,000; Non-current liabilities, $150,000
d. Current liabilities, $150,000; Non-current liabilities, $50,000

Answer 15

c. Current liabilities, $50,000; Non-current liabilities, $150,000

Question 16

Warranty obligations are classified as provisions because the:

Answer 16

amount of future claims is uncertain

Question 17

T Ltd produces clocks and sells them with a one-year warranty. The warranty provision
account currently has a debit balance of $7,000. The estimated cost of repairing clocks that
have already been sold is $18,000. The adjustment needed to update the warranty provision
account is:
a. debit $18,000.
b. credit $18,000.
c. debit $11,000.
d. credit $25,000.

Answer 17

d. credit $25,000.

Question 18

Van Ltd manufactures handbags and provides a six-month quality warranty. The provision
for warranty account has a credit balance of $70,000 and the estimated future obligations for
warranty work is $90,000. The adjustment necessary to update the provision account is a:
a. debit of $90,000.
b. debit of $900,000.
c. credit of $20,000.
d. credit of $140,000.

Answer 18

c. credit of $20,000.