Bakersfield College

ACG 2021

True/False Questions

1)Some liabilities are not contractual obligations and may not be payable in cash.

2. A line of credit is an agreement to provide long-term financing, typically made with a bank or a group of banks.

3. Amounts withheld from employees in connection with payroll often represent liabilities to be remitted to third parties.

4. A customer advance produces a liability that is satisfied when the product or service is provided.

5. Revenue is recognized upon sale of gift cards, rather than being deferred.

6. Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called.

7. The concept of substance over form influences the classification of obligations expected to be refinanced.

8. Under IFRS, a liability that is refinanced after the balance sheet date but before the financial statements are issued would typically be classified as a current liability.

8.            Expense for a quality-assurance warranty is recorded along with the related liability in the reporting period in which the product under warranty is sold.

10. For a loss contingency to be accrued, the claim must have been made before the accounting period ended.

11. A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired and the amount of potential loss can be reasonably estimated.

12. A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible.

13. A liability for an unasserted claim must be accrued if it is reasonably possible that the claim will be asserted.

14. An asset for a gain contingency should not be accrued unless it is probable that the gain contingency will be realized.

15. Under IFRS, the term “probable” indicates a threshold of probability that is substantially more than a 50 percent chance of occurrence.

16. Under IFRS, if it is probable that a contingent liability will result in a future payment but there is a range of equally likely amounts that will be paid, the midpoint of the range should be accrued as a loss.

17. The cost of promotional offers should be recorded as expenses in the accounting period when the offers are redeemed by customers.

18. Unlike the Social Security tax there is no maximum wage base for the Medicare portion of the FICA tax.

19. State and Federal Unemployment Taxes (SUTA and FUTA) must be withheld from employees' wages.

Multiple Choice Questions

20. The most common type of liability is:
    1. One that comes into existence due to a loss contingency.
    2. One that must be estimated.
    3. One that comes into existence due to a gain contingency.
    4. One to be paid in cash and for which the amount and timing are known.

21. Which of the following is not a characteristic of a liability?
    1. It represents a probable, future sacrifice of economic benefits.
    2. It must be payable in cash.
    3. It arises from present obligations to other entities.
    4. It results from past transactions or events.

22. Which of the following is the best definition of a current liability?
    1. An obligation payable within one year.
    2. An obligation payable within one year of the balance sheet date.
    3. An obligation payable within one year or within the normal operating cycle, whichever is longer.
    4. An obligation expected to be satisfied with current assets or by the creation of other current liabilities.

23. Which of the following is not a liability?
    1. An unused line of credit.