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Financial liabilities mock quiz theories

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0987 Financial Liabilities Mock Quiz
Theories (20 items, 1.5 points each)
1. Transaction costs directly attributable to the issue of a financial liability include all of the
following, except
a. Fees and commissions paid to agents
b. Levies by regulatory agencies
c. Transfer taxes and duties
d. Financing costs
2. For a 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.
3. Which of the following represents 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 the last day of
the current year.
d. The obligation to distribute an entity’s own shares next year as a result of a stock
dividend declared near the end of the current year.
4. Which of the following is a current liability?
a. Bond payable due in two years for which there is an adequate sinking fund.
b. Bond payable due in three years expected to be refinanced.
c. Bond payable due in eleven months for which there is an appropriation of retained
earnings.
d. Bond payable due in eight months and refinanced on a long-term basis at the end of
reporting period.
5. At year-end, an entity classified a note payable as current liability. Under what conditions could
the entity reclassify the note payable from current to noncurrent?
a. If the entity has the intent and ability to reclassify the note before the end of reporting
period.
b. If the entity has executed an agreement to refinance the note payable before the
issuance of the financial statements.
c. If the entity has the intent and ability to reclassify the note before the issuance of the
financial statements.
d. If the entity has executed an agreement to refinance the note before the end of
reporting period.
6. If a long-term debt becomes callable due to the violation of a loan covenant
a. The debt may continue to be classified as long term if the entity believes the covenant
can be renegotiated.
b. The debt must be reclassified as current.

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c. Cash must be reserved to pay the debt.
d. Retained earnings must be restricted equal to the amount of the debt.
7. A constructive obligation is an obligation
I. That is derived from an entity’s action that the entity will accept certain responsibilities
because of past practice, published policy, or current statement.
II. The entity has created a valid expectation in other parties that it will discharge those
responsibilities.
a. I only
b. II only
c. Both I and II
d. Either I or II
8. It is an event that creates a legal or constructive obligation because the entity has no other
realistic alternative but to settle the obligation
a. Obligation event
b. Past event
c. Subsequent event
d. Current event
9. An outflow of resources embodying economic benefits is regarded as “probable” when
a. The probability that the event will occur is greater than the probability that the event
will not occur.
b. The probability that the event will not occur is greater than the probability that the
event will occur.
c. The probability that the event will occur is the same as the probability that the event
will not occur.
d. The probability that the event will occur is 90% likely.
10. The issuer of a 10-year term bond sold at par three years ago with interest payable May 1 and
November 1 each year, shall report at year-end
a. Liability for accrued interest
b. Addition to bonds payable
c. Increase in deferred charges
d. Contingent Liability
11. A bond issued on June 1 has interest payment dates of April 1 and October 1. Bond interest
expense for the current year ended December 31 is for a period of
a. Three months
b. Four months
c. Six months
d. Seven months
12. How would the amortization of premium on bonds payable affect each of the following?
Carrying amount of bond Net income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase

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0987 Financial Liabilities Mock Quiz Theories (20 items, 1.5 points each) 1. Transaction costs directly attributable to the issue of a financial liability include all of the following, except a. Fees and commissions paid to agents b. Levies by regulatory agencies c. Transfer taxes and duties d. Financing costs 2. For a 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. 3. Which of the following represents 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 the last day of the current year. d. The obligation to distribute an entity’s own shares next year as a result of a stock dividend declared near the end of the current year. 4. Which of the following is a current liability? a. Bond payable due in two years for which there is an adequate sinking fund. b. Bond payable due in three years expecte ...
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