Question 1

A contingent loss is a liability whose outcome is certain at the balance sheet date but the amount is uncertain.

Accepted Answer

A contingent loss is a potential liability that may occur depending on the outcome of an uncertain future event.

Question 2

A line of credit helps a company deal with temporary cash shortages.

Accepted Answer

False

Question 3

A contingent liability must be recognized if it is likely that a firm will lose a lawsuit filed against it and the amount of the loss can be reasonably estimated.

Accepted Answer

This is the criteria for recognizing a contingent liability according to generally accepted accounting principles (GAAP).

Question 4

A company should record all of its obligations.
 5.The difference between the gross amount of a liability and its net amount is due to the time value of money.

Accepted Answer

The answer of A company should record all of its...

Question 5

All of the following are examples of current liabilities, except for:

Accepted Answer

Prepaid expenses are not current liabilities, they are typically classified as current assets since they represent payments made in advance for future goods or services. Accrued expenses, unearned revenues, and interest payable are all examples of current liabilities.

Question 6

Under IFRS all of the following liabilities are reflected under the current liabilities section of the balance sheet except for:

Accepted Answer

While warranty liabilities, deferred revenues and constructive obligations are all current liabilities that are required to be reflected on the balance sheet under IFRS, contingent liabilities are not recognized as liabilities unless they meet certain criteria. Instead, contingent liabilities are generally disclosed in the notes to the financial statements.

Question 7

Canadian practice requires that liabilities be recorded at their present value.

Accepted Answer

This is in accordance with International Financial Reporting Standards (IFRS) which is applicable in Canada. Under IFRS, liabilities are recorded at their present value unless there is a specific exemption. This is done to accurately reflect the financial position of a company and to provide a true and fair view of their financial statements.

Question 8

Which of the following would best describe a contingent liability?

Accepted Answer

A contingent liability is an obligation that may or may not arise depending on the outcome of a future event, and the amount or timing of payment is uncertain. Examples of contingent liabilities include pending lawsuits, product warranties, and environmental cleanup costs.

Question 9

All current liabilities have fixed due dates and fixed payment amounts.

Accepted Answer

Some current liabilities, such as accounts payable and accrued expenses, may not have fixed payment amounts or due dates. Their amounts and payment schedules depend on the ongoing operations of the business.

Question 10

The calculation of future taxes is based on the permanent differences between book income and tax income.

Accepted Answer

The calculation of future taxes is based on the permanent differences between book income and tax income, which are the items that will never reverse and will always affect the amount of taxable income in the future.

Question 11

Which of the following is not a characteristic of a liability?

Accepted Answer

A liability does not necessarily have a fixed payment amount and payment date. It can have a range of possible payment amounts and payment dates depending on the terms of the obligation. However, it does have the other characteristics listed, including a probable future sacrifice of resources, little discretion to avoid the obligation, and the event giving rise to the liability has already occurred.

Question 12

Accrued warranty expenses create temporary differences for the purpose of calculating future taxes.

Accepted Answer

The answer of Accrued warranty expenses create temporary differences for...

Question 13

A company ordered inventory and made a $2,000 down payment.The inventory is to be received in two months.This is an example of an):

Accepted Answer

This is an example of a partially executed contract because one party (the company) has fulfilled part of its obligation by making a down payment, but the transaction is not fully completed until the inventory is received.

Question 14

All current liabilities are settled with cash.

Accepted Answer

Some current liabilities may be settled through the exchange of goods or services, conversion into long-term liabilities, or through other non-cash means.

Question 15

A permanent difference is a difference between tax and accounting income that will not reverse in a future period.

Accepted Answer

The answer of A permanent difference is a difference between...

Question 16

Accounts receivable occur when a company buys goods or services on credit.

Accepted Answer

Accounts receivable are the amounts owed to a company by its customers, typically for goods or services that have been sold on credit.

Question 17

Long-term debt that is due within one year is classified with other long-term debt.

Accepted Answer

Long-term debt that is due within one year is classified as current liabilities, not with other long-term debt.

Question 18

Unearned revenue is an example of a liability that is settled by the provision of services.

Accepted Answer

The answer of Unearned revenue is an example of a...

Question 19

Which of the following would not be recorded?

Accepted Answer

Mutually unexecuted contracts are not recorded in financial statements because they represent agreements that have not yet been acted upon by any party. Accounting principles require that transactions must be realized or realizable and earned before they can be recognized. Since mutually unexecuted contracts do not meet these criteria, they are not recorded.

Question 20

A purchase commitment is an example of a mutually unexecuted contract.

Accepted Answer

A purchase commitment is a type of contract where the buyer agrees to buy a certain quantity of goods or services from the seller at a specified price, but the actual purchase and delivery may happen at a later date. Until the goods or services are actually delivered and paid for, the contract remains unexecuted by both parties. Therefore, it is a mutually unexecuted contract.

Quiz 9: Short-Term Liabilities