Question 1

Unearned revenue is a financial liability.

Accepted Answer

False

Question 2

If a company's fiscal year is the same as the calendar year used for property tax purposes, there should be no prepaid property tax on its year-end financial statements but there may be a property tax liability.

Accepted Answer

If the fiscal year is the same as the calendar year used for property tax purposes, then the property tax liability will have already been paid during the year and there should be no need for prepaid property tax on the year-end financial statements. However, there may still be a property tax liability for any unpaid taxes or adjustments needed after the year-end.

Question 3

Property tax payable is classified as a non-current liability because it is related to property, which is a non-current asset.

Accepted Answer

Property tax payable is typically classified as a current liability because it is usually due within one year, regardless of the nature of the asset it is associated with.

Question 4

A contingent liability may materialize in the future because of something that happened in the past.

Accepted Answer

A contingent liability is a liability that may or may not occur depending on a future event, such as the outcome of a lawsuit. This future event may be related to something that happened in the past, such as a legal dispute or a warranty claim on a product sold in the past. Therefore, a contingent liability may materialize in the future because of something that happened in the past.

Question 5

Long-term notes payable can only have floating interest rates.

Accepted Answer

Long-term notes payable can have either fixed or floating interest rates, depending on the terms of the loan agreement.

Question 6

When a business sells an item and collects Harmonized Sales Tax (HST) on it, a current liability arises.

Accepted Answer

When a business collects HST on a sale, they are essentially collecting it on behalf of the government. This means that the amount collected is a current liability until it is remitted to the government.

Question 7

Provisions are liabilities of uncertain timing or amount, along with some uncertainty as to whether the liability will have to be paid.

Accepted Answer

The answer of Provisions are liabilities of uncertain timing or...

Question 8

Secured notes are often also referred to as mortgages.

Accepted Answer

Secured notes are a type of loan backed by collateral, and when this collateral is real estate, the secured note is commonly referred to as a mortgage.

Question 9

Under IFRS, contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

Accepted Answer

Under IFRS, contingent liabilities are not recorded in the accounts if there is only a remote possibility of occurrence; they are only disclosed in the notes to the financial statements.

Question 10

If drawing on an operating line of credit results in a negative cash balance, a current liability known as bank indebtedness results.

Accepted Answer

When drawing on an operating line of credit results in a negative cash balance, it means that the company has borrowed more than it has in its bank account. This results in a current liability known as bank indebtedness.

Question 11

Amounts available to be drawn in the future from an operating line of credit improve a company's liquidity.

Accepted Answer

The availability of an operating line of credit means that a company has access to funds as needed, which can improve its liquidity. This provides the company with greater flexibility in managing its cash flow and funding short-term needs.

Question 12

Interest expense on a bank loan payable is only recorded at maturity.

Accepted Answer

Interest expense on a bank loan payable is recorded over the life of the loan, not just at maturity. This is typically done through an amortization schedule that spreads out the interest expense over the loan term.

Question 13

The debt to total assets ratio measures the percentage of the total assets provided by creditors.

Accepted Answer

The debt to total assets ratio is calculated by dividing total debt by total assets, and the result represents the percentage of assets that are financed by debts or creditors.

Question 14

A financial liability means there is a contractual obligation to pay cash in the future.

Accepted Answer

A financial liability is a contractual obligation to pay cash or another financial asset to another party in the future. Examples include accounts payable, loans, and bonds.

Question 15

While short-term notes are generally repayable in full at maturity, most long-term notes are repayable in a series of periodic payments called instalments.

Accepted Answer

Long-term notes are usually structured with periodic payments over the life of the loan, while short-term notes are usually due in full at maturity.

Question 16

The classification of a liability as current or non-current is important because it may affect the evaluation of a company's liquidity.

Accepted Answer

The classification of a liability as current or non-current helps in understanding a company's ability to meet its short-term obligations and helps in evaluating its liquidity position.

Question 17

Instalment payments consist of a mix of interest on the unpaid balance of the loan and a reduction of the loan principal.

Accepted Answer

This is true. Instalment payments usually include both the interest charged on the remaining loan balance, as well as a portion of the loan principal, which reduces the overall amount owed over time.

Question 18

Account for current liabilities.

Accepted Answer

The answer of Account for current liabilities....

Question 19

Unsecured notes are issued against the general credit of the borrower.

Accepted Answer

Unsecured notes do not have any collateral backing and instead rely on the creditworthiness of the borrower for repayment.

Question 20

Payroll liabilities include the employer's share of CPP contributions and EI premiums.

Accepted Answer

Payroll liabilities include various amounts that an employer owes to employees and government entities. This includes the employer's share of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums.

Quiz 10: Reporting and Analyzing Liabilities