Deck 22: Liabilities

Question 1

It is not true in relation to IAS 19/AASB 119 'Employee Benefits' that:

A)Employee benefits include wages and salaries,non-monetary fringe benefits,annual leave and superannuation
B)The principles for recognition of employee benefits as expenses or liabilities are consistent with those in the Conceptual Framework
C)Wages and salaries,annual leave and sick leave are to be reported at their nominal amounts
D)The controls that need to be provided when operating a payroll system are outlined

Answer 1

D

Question 2

A contingent liability is reported:

A)On the balance sheet
B)In a footnote to the financial reports
C)In the income statement
D)As a contra to an asset account

Answer 2

B

Question 3

Under the Conceptual Framework 'probable' in the recognition criteria means:

A)A higher than 50% probability
B)A higher than 75% probability
C)A higher than 90% probability
D)100% probability

Answer 3

A

Question 4

Which of these criteria specified in the Conceptual Framework must be met before a liability can be recognised in the accounting records?
I)It is probable that the future sacrifices associated with the item will occur
Ii)The liability is beyond a reasonable doubt
Iii)The liability has a cost or value that can be measured with reliability

A)i,ii,iii
B)i,iii
C)ii,iii
D)i,ii

Question 5

The statement relating to workers' compensation insurance that is not true is:

A)It relates to an insurance scheme,imposed by law,whereby the employer purchases insurance which may be used to compensate employees for job related injuries and loss of wages
B)It is compulsory for all employers to obtain this cover
C)The premium is deducted from employees' salaries and wages
D)The premium is based on a percentage of the total wages and salaries bill for the coming year

Question 6

Jill Wybrow's regular and overtime pay for the week ending 30 September was $1,480.Amounts were deducted for income tax $109.50,union fees $6 and loan repayments of $20.Jill's employer contributes 9% of her gross pay to a superannuation fund on her behalf.What is Jill's net take home pay for the week?

A)$1,308.50
B)$1,326.50
C)$1,344.50
D)$1,337.00

Question 7

On 1 December 2012 Pritchett-Moore Management Company issued a three-month,$30 000 bills payable to Northport Savings & Loan in order to borrow $29 000.If the bills payable is still outstanding at 31 December 2012 which of the following will be reported on Pritchett-Moore's financial statements concerning the bill?

Question 8

The requirement of IAS 37/AASB 137 that a provision must satisfy the definition of a liability means which of these is not regarded as a liability?

A)Provision for doubtful debts
B)Provision for long-service leave
C)Provision for warrantee expenses
D)Provision for onerous contracts

Question 9

How many of these are a possible basis for classifying liabilities?
.Timing of settlement
.Whether secured or unsecured
.Source
.Liquidity

A)1
B)2
C)3
D)4

Question 10

The classification of liabilities on the basis of timing of settlement,i.e.current and non-current,is useful as it helps decision-makers assess the firm's ability to meet all of the following except:

A)Commitments which are part of the operating cycle
B)Capital repayments
C)Dividends
D)Profitability

Question 11

The essential characteristics of a liability under the definition in the Conceptual Framework are?
I)A legal debt.
Ii)A present obligation to an external party.
Iii)Settlement requiring an outflow of resources embodying economic benefits.
Iv)The obligation must have resulted from past events.

A)i,ii,iii,iv
B)i,ii,iii,
C)ii,iii
D)ii,iii,iv

Question 12

One of these items is not normally a payroll ancillary cost for an employer in Australia?

A)Annual leave
B)Medical and hospital insurance
C)Workers' compensation insurance
D)Long-service leave

Question 13

The key characteristic of contingent liabilities is:

A)A legal dispute must exist at balance date
B)The liability does not exist beyond a reasonable doubt
C)The liability will be confirmed only by the occurrence or non-occurrence of a future event not completely within the control of an entity
D)The timing of the future sacrifice of economic benefits is uncertain

Question 14

Which of these would not be defined as a liability under the Conceptual Framework?

A)A loan from a financial institution
B)Money owing to a supplier for goods purchased
C)Wages owing to employees
D)An arrangement to pay a bonus commission to salespersons for achieving sales over a certain level

Question 15

Which of these is not typically a non-current liability?

A)Unsecured notes
B)Mortgage payable
C)Provision for long service leave
D)Accounts payable

Question 16

Platypus Pty Ltd made the following journal entry to accrue payroll for the week ended 28 February: $\begin{array}{lc}&Dr. &Cr.\\&\$&\$\\\text { Salaries expense }&139,700\\\text { Australian Taxation Office } && 32,000 \\\text { Superannuation fund } && 11,000 \\\text { Salaries payable } && 96,700\end{array}$ What was the amount of gross salaries earned by the employees of Platypus Pty Ltd for the week,and; II.How much cash will be paid to them for salaries for the week?

A)I.$139 700 II.$96 700
B)I.$96 700 II.$96 700
C)I.$139 700 II.$139 700
D)I.$96 700 II.$139 700

Question 17

Under Australian awards the statement relating to annual leave that is true is:

A)Employees are generally entitled to two weeks paid annual leave a year
B)An employee is not entitled to annual leave until he/she has worked for a year with the same employer
C)Employees are entitled to be paid pro-rata for annual leave not taken if their employment terminates
D)Annual leave is generally accounted for on a cash rather than an accrual basis

Question 18

The key difference between provisions and liabilities is:

A)The party that the obligation is owed to
B)Whether the obligation is current or non-current
C)The uncertainty regarding the amount or timing of the future sacrifice of economic resources
D)Whether there is an obligation

Question 19

Which of these would be defined as contingent liabilities?
I)A loan from a financial institution
II)An unresolved lawsuit bought against the entity for breach of health and safety regulations
III)An agreement to act as guarantor for another firm's borrowings
IV)A bank overdraft

A)I,II,IV
B)II,III
C)I,II
D)I,III

Question 20

Possum Pty Ltd made this journal entry to accrue payroll for the week ended 28 February 2012: $\begin{array}{lr}&Dr. &Cr.\\&\$&\$\\\text { Office salaries expense } & 14500 \\\text { Sales salaries expense } & 5500\\\text { Taxation Office } && 3800 \\\text { Superannuation fund } && 1000 \\\text { Clerks union } && 200 \\\text { Salaries payable } && 15,000\end{array}$ The cash payable to Possum Pty Ltd's employees for the week is:

A)$14 500
B)$15 000
C)$17 000
D)$20 000

Question 21

In the books of the guarantor,acting as guarantor of another's borrowings is an example of a c_______________ liability.

Question 22

The untrue statement concerning liabilities is:

A)Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk
B)The absolute value of liquidity ratios is usually more important than their trend over time.
C)A difference between an accounts payable and a bills payable is that the liability created with a bills payable is evidenced by a bills payable or a promissory note.
D)Leverage is the use of borrowed funds in an attempt to earn a return greater than the interest paid on the borrowings

Question 23

BB had previously purchased inventory from L Wong for $15 000.On 1 October BB gave Wong a 60-day,bill of exchange to cover the amount of the account payable plus interest at 9% p.a.The correct accounting entry in BB's books to record the settlement of the bill at maturity is:

A)Debit bills payable $15 000,credit bank $15 000
B)Debit bills payable $15 222,credit interest expense $222; credit bank $15 000.
C)Debit bills payable $15 222,debit interest expense $222; credit bank $15 222,credit unexpired interest $222.
D)Debit bills payable $14 778,debit interest expense $222; credit bank $15 000

Question 24

L_______________ are present obligations of the entity arising from past events,the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Question 25

In relation to long-service leave how many of these statements are untrue?
.The entry to accrue long-service leave is a debit to long-service leave expense and a credit to provision for long-service leave
.The leave is paid at the rate of pay applicable when the leave is taken
.Provision for long-service leave has an element of current liability but is largely non-current

A)0
B)1
C)2
D)3

Question 26

A capitalisation ratio of 4:1 means:

A)Debt is 75% equity is 25%
B)Debt is one fifth of equity
C)Equity is one fifth of debt
D)Debt is 25% equity is 75%

Question 27

L_______-s_____________ leave represents paid leave granted to employees who have remained with the one employer over an extended period of time.

Question 28

Souvenirs Pty Ltd has a current ratio of 3:1 and current liabilities of $15 000.If Souvenirs Ltd has $10000 of inventory,what is the quick ratio?

A)2.25 to 1
B)2.00 to 1
C)2.33 to 1
D)1.50 to 1

Question 29

An arrangement whereby the terms and conditions of a debt are avoided or defeated is known as:

A)defeasance
B)discounting
C)obligating
D)collateralising

Question 30

If the debt ratio is 60% the equity ratio is:

A)1.67:1
B)2.5:1
C)40%
D)cannot be calculated

Question 31

The statement concerning debentures that is incorrect is:

A)A trustee,such as a bank or an insurance company,must be appointed to protect the rights of the debenture holders
B)An issue of debentures to the public must be accompanied by a prospectus
C)The division of debenture borrowings into $100 or $50 units allows many small investors to participate in the issue
D)The market value of debentures is always the same as their face value

Question 32

The payment of employees requires a debit/credit)________ to wages and salaries payable and a debit/credit)_________ to bank.

Question 33

A $100 debenture quoted at 104 is said to:

A)Sell at a discount
B)Sell at a premium
C)Sell at $4 above its market value
D)Sell at par

Question 34

How many of these ratios are used to evaluate long-term financial stability?
.Debt ratio
.Equity ratio
.Capitalisation ratio
.Current ratio
.Acid test ratio

A)2
B)3
C)4
D)5

Question 35

On 1 October 2012 C purchased a building for $1 250 000,paying $250 000 as a deposit and giving the seller a 12% mortgage for the balance.The monthly repayment was $14 000.The entry to record the payment on 1 November 2012 is:

A)Dr Interest expense $10 000; Dr Mortgage payable $4,000; Cr Bank $14 000
B)Dr Mortgage payable $14 000; Cr Bank $14 000
C)Dr Interest expense $10 000; Dr Bank $4,000; Cr Mortgage payable $14 000
D)Dr Interest expense $14 000; Cr Bank $14 000

Question 36

'No Rust' car sales provides a one year labour and parts warranty with every car sold and at the start of 2012 had a provision of $16 000 to cover warranty claims.On 30 March 2012 $2 700 was paid out for repairs for vehicles under warranty.The correct accounting entry to record the payment of the claims is:

A)Debit warranty expense $2 700; credit provision for warranties $2 700
B)Debit provision for warranties $2 700; credit bank $2 700
C)Debit provision for warranties $2 700; credit warranty expense $2 700
D)Debit warranty expense $2 700; credit bank $2 700

Question 37

What types of accounts are: I.GST collections,II.GST outlays?

A)I.Liability,II Asset
B)I.Negative Liability,II.Liability,
C)I Asset,II.Liability
D)I.Liability,II Negative Liability

Question 38

From the point of view of the business,which of these is an advantage of using long-term debt rather than equity in financing?
I)It does not dilute the control of existing owners
II)Debt holders have priority over owners if the business is wound up
III)Interest payments are a fixed commitment regardless of profits
IV Interest is tax deductible

A)I,II,III,IV
B)I,IV
C)I,II,IV
D)I

Question 39

Liabilities are classified into two broad groups on the balance sheet,c_____________ and n_______-_______________.

Question 40

This is Builders Ltd's balance sheet at year-end. $$\begin{array} { l r } \text { Current assets } & \$ 410000 \\\text { Long-term assets } & 345000 \\\text { Current liabilities } & 250000 \\\text { Long-term liabilities } & 100000 \\\text { Share cap ital } & 200000 \\\text { Retained earnings } & 205000\end{array}$$ The debt ratio is:

A)52%
B)73%
C)86%
D)46%

Question 41

A m __________ is a legal document setting forth the specific assets serving as collateral for a loan.

Question 42

The single value,at the present time,of cash flows expected to be received or paid in the future,which have been discounted at an appropriate rate of discount,is known as the p____________ v___________.

Question 43

The GST c_______________ account is classified as a current liability on the balance sheet.

Question 44

A d______________ is a form of secured liability which is issued when a large amount of money is borrowed by spreading the borrowing over many different lenders.

Question 45

The two basic categories of finance for business are borrowings and e____________.