Question 1

Current Liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Accepted Answer

Current liabilities are financial obligations a company is expected to settle within one year or within its normal operating cycle, whichever is longer.

Question 2

A bond issued at a price below its maturity or par value is sold at a discount.

Accepted Answer

A bond issued at a price below its maturity or par value is sold at a discount. This happens when the bond's coupon rate is lower than the prevailing interest rate, making the bond less attractive to potential buyers.

Question 3

Present value expresses the amount of cash that must be invested today to receive a great amount in the future.

Accepted Answer

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Question 4

The amount of long- term debt that must be paid in the current period affects the current ratio.

Accepted Answer

The current ratio takes into account the current liabilities, which include long-term debt that must be paid within the current period. Therefore, the amount of long-term debt that must be paid in the current period would affect the current ratio.

Question 5

When a company's balance sheet includes a long- term pension liability, the company's pension plan is under- funded.

Accepted Answer

An underfunded pension plan means that the amount of money set aside for pension obligations is less than the amount required to meet those obligations, resulting in a long-term pension liability on the company's balance sheet.

Question 6

The times- interest- earned ratio relates net income to interest expense.

Accepted Answer

The times-interest-earned ratio is calculated by dividing net income by interest expense. It measures a company's ability to meet its interest payments with its earnings.

Question 7

Lease payments are paid by the lessee.

Accepted Answer

Lease payments are typically made by the lessee, who is the party renting or leasing the asset from the lessor.

Question 8

An example of a postretirement benefit provided by a company is medical insurance for retired workers.

Accepted Answer

Medical insurance for retired workers is an example of a postretirement benefit provided by companies.

Question 9

An accrued expense is an expense incurred in the current period that will be paid in a future period.

Accepted Answer

Accrued expenses are expenses that have already been incurred but haven't been paid yet. They represent an obligation to pay in the future and are recorded as a liability on the balance sheet. Examples of accrued expenses include salaries and wages, rent, and interest expenses.

Question 10

Amortizing the premium on bonds payable is reported as additional revenue when the bond matures.

Accepted Answer

Amortizing the premium on bonds payable is recorded as a reduction of interest expense over the life of the bonds, not as additional revenue when the bond matures.

Question 11

The lessee in a capital lease capitalizes the asset if it meets only one of the four criteria.

Accepted Answer

The answer of The lessee in a capital lease capitalizes...

Question 12

The straight- line method of computing interest expense is preferred over the effective interest method because it is easier to calculate and is more precise.

Accepted Answer

The effective interest method is more precise as it takes into account the changing balance of the loan or investment over time. The straight-line method assumes a constant balance and interest rate, which may not be accurate in practice. While the straight-line method may be simpler to calculate, it may lead to errors in financial reporting.

Question 13

At maturity, a bond's market value equals its par value.

Accepted Answer

At maturity, a bond is redeemed by the issuer at its par value, which is the face value of the bond.

Question 14

When recording interest accrued on very short- term notes, the interest can be added to the Notes Payable account.

Accepted Answer

The answer of When recording interest accrued on very short-...

Question 15

Sales tax payable is an estimated liability arising out of sales revenue that has been reported on the income statement.

Accepted Answer

The answer of Sales tax payable is an estimated liability...

Question 16

Earnings per share is the amount of a company's net income per share of its common stock.

Accepted Answer

Earnings per share (EPS) is a financial metric that calculates the portion of a company's profit allocated to each outstanding share of common stock, indicating the company's profitability.

Question 17

Contingent gains are reported on the income statement.

Accepted Answer

Contingent gains are not recognized on the income statement until they are realized or virtually certain, in accordance with accounting principles.

Question 18

A contingent liability that has a remote chance of occurrence should be disclosed in the financial statement footnotes.

Accepted Answer

The answer of A contingent liability that has a remote...

Question 19

The principal on a callable bond must be paid upon the demand of the bond holder.

Accepted Answer

Callable bonds give the issuer the right to repay the principal before the maturity date, not the bondholder.

Question 20

Earnings per share can be used to compare the operating performances of different size companies.

Accepted Answer

Earnings per share (EPS) is a useful financial ratio for comparing the profitability of companies of different sizes. This is because it calculates the amount of earnings per share of stock, which allows for a more accurate comparison between companies, regardless of the number of outstanding shares.

Quiz 8: Liabilities