LIABILITIES

QUIZ: THEORIES
1. Which is not considered a characteristic of liability?
a. Present obligation
b. Arises from the past event
c. Results in an outflow of resources
d. Liquidation is reasonably expected to require use of existing
resources classified as current assets
QUIZ: THEORIES
2. For liability to exist
a. A past transaction or event must have occurred.
b. The exact amount must be known
c. The identity of the party owed must be known
d. An obligation to pay cash in the future must exist
QUIZ: THEORIES
3. Which of the ff represent a liability?
a. The obligation to pay for goods that an entity expects to order from
suppliers next year
b. The obligation to provide goods that customers have ordered and
paid for during the current year
c. The obligation to pay interest on a five-year note payable that was
issued at year-end
d. The obligation to distribute an entity’s own shares next year as a
result of a share dividend.
QUIZ: THEORIES
4. Which does not meet the definition of a liability?
a. The signing of a three-year employment contract at a fixed annual
salary
b. An obligation to provide goods or services in the future
c. A note payable with no specified maturity date
d. An obligation that is estimated in amount
QUIZ: THEORIES
5. The conceptually appropriate method of measuring a liability is to
a. Discount the amount expected cash outflows that are necessary to liquidate the
liability using the market rate of interest at the date the liability was initially
incurred.
b. Discount the amount of expected cash outflows that are necessary to liquidate
the liability using market rate of interest at the date of the financial statements
c. Record as liability the amount of cash that would be requiredto pay the liability
in the ordinary course of business on the date of the financial statement
d. Record as liability the amount of cash actually received when a liability was
incurred.
QUIZ: THEORIES
6. What is the relationship between present value and the concept of
liability?
a. Present value is used to measure certain liabilities
b. Present value is not used to measure liabilities
c. Present value is used to measure all liabilities
d. Present value is used to measure non current liabilities only
QUIZ: THEORIES
7. Which is a characteristic of a current liability but not a noncurrent
liability?
a. Unavoidable obligation
b. Present obligation that entails settlement by probable future
transfer of cash, goods or services
c. Settlement is expected within the normal operating cycle or within
12 months, whichever is longer
d. The obligating event reating the liability has already occurred.
QUIZ: THEORIES
8. What is the relationship between current liabilities and an operating
cycle?
a. Liquidation of current liabilities is reasonably expected withing the
operating cycle or one year, whichever is longer
b. Current liabilities are the result of operating transactions
c. Current liabilities cannot exceed the amount incurred in one
operating cycle
d. There is no relationship between the two.
QUIZ: THEORIES
9. Which is not an acceptable presentation of current liabilities?
a. Listing current liabilities in the order of maturity
b. Listing current liabilities according to amount
c. Offsetting current liabilities against assets that are to be applied to
their liquidation
d. Showing current liabilities in the order of liquidation preference
QUIZ: THEORIES
10. Which statement is not true regarding the presentation of current
liabilities in accordance with IFRS?
a. The non-current liabilities follows the current liabilities
b. Current liabilities may be listed in the order of maturity, in
descending order of magnitude or in the order of liquidity
preference
c. Current liabilities are generally recorded at face amount
d. Current liabilities should not be offset against the assets used for
liquidations.
11.Dinky Company reported the ff information at the end of reporting
period. Accounts Payable P1,000,000
Advances to employees 45,000
Unearned rent revenue 300,000
Est, Liability under warranties 250,000
Cash surrender value of officers life insurance 75,000
Bonds payable 5,000,000
Discount on bond payable 500,000
Trademark 50,000

What amount should be reported in the statement of financial position as

total liabilities?
a. 6,050,000
b. 1,550,000
c. 7,050,000
d. 6,095,000
11.Miel Company revealed the ff amount balances on December 31, 2023
Accounts Payable P1,500,000

Bonds payable due 2024 2,500,000

Discount on bonds payable 300,000

Dividend payable 800,000

Note payable due 2025 2,000,000

What amount should be reported in the statement of financial position as

total current liabilities?
a. 6,050,000
b. 1,550,000
c. 7,050,000
d. 6,095,000
QUIZ: THEORIES ANSWER KEY
1.D
2.A
3.B
4.A
5.A
6.A
7.C
8.A
9.C
10.A
PROBLEM 1: SOLUTION (dinky)
ACCOUNTS PAYABLE 1,000,000
UNEARNED RENT REVENUE 300,000
EST. LIABILITY FOR WARRANTIES 250,000
BONDS PAYABLE 5,000,000
DISC. ON BONDS PAYABLE (500,000)
TOTAL LIABILITIES 6,050,000
PROBLEM 2: SOLUTION (miel)
ACCOUNTS PAYABLE 1,500,000
BONDS PAYABLE 2,500,000
DISCOUNT ON BONDS PAYABLE (300,000)
DIVIDEND PAYABLE 800,000
TOTAL CURRENT LIABILITIES 4,500,000