Liabilities

1. A present obligation of the entity arising from past events, the settlement of which is expected to
result in an outflow from the enterprise of resources embodying economic benefits
a. Payables
c. Current Liability
b. Liability
d. Non-current Liability
2. Not liabilities as yet but may become liabilities in the future
a. Estimated Liability
c. Contingent Liabilities
b. Deferred Liabilities
d. Deferred Credits
3. A liability that is expected to be settled in the norm al course of the enterprise's operating cycle or is
due to be settled within twelve months of the balance sheet date.
a. Trade accounts Payable
c. Current Liabilities
b. Trade Notes Payable
d. Non-current liabilities
4. Amounts due trade creditors as a result of ordinary business transactions
a. Trade accounts Payable
c. Acceptances payable
b. Trade Notes Payable
d. Accrued expenses payable
5. Short-term obligations arising from the normal operating cycle which are evidenced by written
promises to pay.
a. Acceptances payable
c. Estimated Liabilities
b. Trade Notes Payable
d. Accrued expenses payable
6. Arise when, before the corresponding liability to the bank is paid, the goods are released to the buyer
in behalf of the bank which advanced the money for importation
a. Acceptances Payable
c. Estimated Liabilities
b. Liabilities under trust receipts
d. Accrued expenses payable
7. Obligation supported by drafts drawn by the supplier on the purchaser of goods and accepted by such
purchaser.
a. Acceptances Payable
c. Estimated Liabilities
b. Liabilities under trust receipts
d. Accrued expenses payable
8. Liabilities for expenses incurred on or before the balance sheet date but payable at a later date
usually to specific persons, the amount determinable with reasonable accuracy.
a. Acceptances Payable
c. Estimated Liabilities
b. Liabilities under trust receipts
d. Accrued expenses payable

9. Accrued liabilities which can be determined only approximately or the specific persons to whom
payment will be made may not be identified definitely but the existence of the liability is certain
a. Acceptances Payable
c. Estimated Liabilities
b. Liabilities under trust receipts
d. Accrued expenses payable
10. Cash dividends that have been declared but not yet paid as the balance sheet date.
a. Dividends in arrears
c. Stock dividends payable
b. Scrip dividends payables
d. Cash dividends payable
11. Arise from advance payments received from regular customers for merchandise to be delivered or
services to be performed in the future, or from overpayments, errors and other causes.
a. Customers' accounts with credit balance
c. Advances payable
b. Accounts Payable
d. Deposits payable
12. Consists of cash or property received but which are returnable to the depositor or which have been
collected or otherwise accumulated to be remitted to third parties.
a. Customers' accounts with credit balance
c. Advances payable
b. Accounts Payable
d. Deposits payable
13. Consist of billed or uncollected revenues that are not recognized as income pending completion of
the earning process.
a. Estimated Liabilities
c. Contingent Liabilities
b. Deferred Liabilities
d. Deferred Credits
14. Portion of bonds, mortgages and other long-term indebtedness which are to be paid within one year
from the balance sheet date and which are not payable out of the special retirement fund or from the
proceeds of a new bond issue or by conversion into capital stock.
a. Current maturities of long-term debts
c. Current Liabilities
b. Non-current liabilities
d. Deferred Liabilities
15. Obligation extending beyond the current operating cycle or one year, whichever is longer, or
through payable within one year will not be liquidated out of the existing current assets.
a. Current maturities of long-term debts
c. Current Liabilities
b. Non-current liabilities
d. Deferred Liabilities
16. Which of the following statements is correct?
a. Accounting liabilities and legal debts are the same
b. Theoretically, liabilities should be reported at their contract prices or maturity values.
c. The maturity of a liability is relatively fixed just liked that of owners equity.
d. A mere commitment to acquire goods or services does not require recognition as a liability
until the goods or services ordered have been received or rendered.

17. Statement 1 - Obligations may be legally enforceable as a consequence of a binding contract or

statutory requirement.
Statement 2 - Obligations may also arise from normal business practice, custom and a desire to
maintain good business relation or act in equitable manner.
a. Both statements are correct
b. Both statements are not correct
c. Maybe they are correct
d. One of statements is correct
18. Which of the following statements is not correct?
a. A decision by management of an entity to acquire assets in the future gives rise to a present
obligation.
b. An obligation may be extinguished by a creditor waiving or forfeiting its rights
c. Payables arising from the normal course of business due under customary trade terms not
exceeding one year are stated at their maturity values
d. All the above are correct statements

19. An account which would be classified as a current liabilitiy is

a. Deposits payable
b. Reserve for possible losses on purchase commitments
c. Accounts payable - debit balance
d. Dividends payable in stock
20. In annuity payments, the amount of the interest in each of the equal periodical payments is
a. Increasing
c. Equal
b. Decreasing
d. Not determinable
21. Of the following items, which one should be classified as a current liability?
a. An accommodation endorsement on a demand note issued by an affiliated company
b. A cash dividend declared before the balance sheet date when the date of payment is
subsequent to the balance sheet date
c. Unfunded past service cost of a pension plan to the extent that benefits have not vested and the
cost not yet charged to operations
d. Dividends in arrears on cumulative preferred stock

22. If the present value of a note issued in the exchange for a plant asset is less than its face amount, the
difference should be
a. Included in the costs of the asset
b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d. Included in interest expense in the year of issuance

23. Manila Company issued a note in exchange for cash solely. Assuming that the items below differ in
amount, the present value of the note at issuance is equal to the
a. face amount
b. face amount, discounted at the prevailing interest rate for similar notes
c. proceeds received
d. proceeds received, discounted at prevailing interest rate
24. An accrued expense is an expense
a. incurred but not yet paid
b. incurred and paid

c. paid but not incurred

d. not reasonably estimable

25. Rent revenue collected one month in advance should be accounted for as
a. revenue in the month collected
b. current liability
c. a separate item in the equity section
d. an accrued liability
26. An accrued expense can best be described as an amount
a. paid and currently matched with earnings
b. paid and not currently matched with earnings
c. not paid and not currently matched with earnings
d. not paid and currently matched with earnings
27. Estimated liabilities are disclosed in financial statements by
a. footnote to the statements
b. showing the amount among the liabilities but not extending it to the liability total
c. an appropriation of retained earnings
d. appropriately classifying them as regular liabilities in the balance sheet
28. An overstatement of reported earnings may result from the failure to record
a. dividends in arrears on preferred stock outstanding
b. an accrued liability
c. amortization of premium on bonds payable
d. a contingent liability
29. Calculation of the amount of the equal periodic payments which would be equivalent to a year 0
outlay of P1,000 is most readily affected by reference to a table which shows the
a. Amount of 1
c. Amount of an annuity of 1
b. Present value of 1
d. Present value of an annuity of 1

30. An unpaid workmen's compensation claim against his employer for injuries sustained in an accident
which has already occurred is an example of a (an)
a. contingent loss
c. contingent liability
b. anticipated loss
d. estimated liability
31. Which of the following should not be classified as a current liability?
a. Stock dividends payable
b. Debts which arise from operations directly related to the operating cycle
c. Liabilities whose regular and ordinary liquidation is expected to occur within one year
d. Estimated or accrued amounts expected to be required to cover expenditures within the year
for known liabilities
Bonds Payable
1. Which of the following statements is correct?
a) A bond is a whole unit issued to a single person while a promissory note is subdivided into
fractional parts sold to many different entities.
b) Bonds will sell at a discount if their interest rate is higher than the prevailing market rate
c) Effective interest on bonds is arrived at by multiplying the stated rate by the bond carrying
value at the beginning of the period
d) Reacquired bonds held for future reissue (called treasury bonds) should be presented as a
contra-account in the long term liabilities section of the balance sheet

2. Which of the following statements is true?

a) The bonds outstanding method refers to the amortization procedure for serial bonds utilizing
the compound-interest method.
b) The conversion of bonds to capital stock will not result in any gain or loss if the book value
method is used
c) Bond sinking fund represents an appropriation of retained earnings for the purpose of avoiding
the impairment of working capital
d) All the above statements are not true

3. The presence of an unamortized debt premiums indicates that at the time of issuance the underlying
obligations
a. carried interest at the prevailing market rate
b. carried interest below prevailing market rate
c. carried interest above prevailing market rate
d. was non-interest bearing

4. When all bonds mature at a single date they are called

a. straight bonds
c. debenture bonds
b. serial bonds
d. coupon bonds
5. Unamortized debt discount should be reported on the balance sheet of the issuer as
a. direct deduction form the face amount of the debt
b. direct addition to the face amount of the debt
c. deferred charges
d. part of the issue costs
6. Columbia Company issued bonds with a maturity amount of P200,000 and a maturity of ten years
from date of issue. If the bonds were issued at a premium, this indicates that
a. the yield (effective or market ) rate of interest exceeded the nominal (or coupon ) rate.
b. the nominal rate of interest exceeded the yield rate
c. the yield rate and nominal rate of interest coincided
d. no necessary relationship exists between the two rates
7. If bonds are initially issued at a discount and the straight line method of amortization is issued,
interest expense in the earlier years
a. will exceed that which would have been had the scientific or compound interest method
of amortization been used
b. will be less than what it would have been had the scientific method of amortization
been used.
c. will be the same as what would have been had the scientific method of amortization
been used
d. will be less than the coupon rate of interest
8. The bonds outstanding method of amortization of the premium or discount on bonds
a. provides for a uniform rate of interest expense based on declining book balance of debt
b. is an application of the straight line method
c. is desirable when interest payments dates do not coincide with the accounting period dates
d. is necessary when there is a partial redemption of the bonds before maturity
9. Convertible subordinated debentures
a. have priority over other indebtedness
b. are usually secured by a first or second mortgages
c. do not earn interest
d. can be exchanged for other securities

10. When the interest payment dates of a bond are May 1 and November 1 and the bond issue is sold
on June 1, the amount of cash received by the issuer will be
a. decreased by accrued interest from June 1 to November 1
b. decreased by accrued interest from May 1 to June 1
c. increased by accrued interest from June 1 to November 1
d. increased by accrued interest from May 1 to June 1
11. In theory (disregarding any other marketplace variables) the proceeds from sale of a bond will be
equal to
a. present value of the principal amount due at the end of the life of the bond plus the
present value of the interest payments made during the life of the bond, each
discounted at the prevailing market rate of interest
b. the face amount of the bonds
c. the face amount of the bonds plus the present value of the interest payments made
during the life of the bond discounted at the prevailing market rate of interest
d. the sum of the face amount of the bond and the periodic interest payments

12. The stated interest rate on the face of a debt instrument affects the issue price of the instrument. If
the instrument is issued at a discount (assuming no other market place variable), the prevailing market
rate of interest is
a.
b.
c.
d.

At the stated interest rate

above the stated interest rate
below the stated interest rate
not determinable form the information given

13. Theoretically, a bond payable should be reported at the present value of the principal plus the
present value of the interest discounted at the
a. stated interest rate for both the principal and interest
b. effective interest rate for both principal and interest
c. stated interest for principal and effective interest rate for interest
d. effective interest rate for principal and stated interest rate for interest
14. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight premium
should be
a. charged to retained earning when the bonds are issued.
b. expensed in the year in which incurred
c. capitalized as organization costs
d. reported on the balance sheet as an asset and amortized over the ten year bond term

15. For a bond payable with a term of 20 years, originally issued at a discount and outstanding for 10
years, the theoretically preferred presentation in the statement of the financial position is the
a. amount expected to be paid to the bondholders at bond maturity
b. face amount of the bonds less discount at the date of issue
c. bond maturity value less the unamortized discount when the compound interest
method of unamortized is issued
d. face amount of the bonds

16. ABC Corporation issued on December 31, 2008, P 800,000 of ten year general mortgage bonds at
105. The premium on the said bonds should be presented in the company's balance sheet at December
31, 2008 as
a. part of additional paid in capital
b. part of retained earnings
c. deferred credit
d. addition to bonds payable
Other Long Term Debts
1. A situation where the creditor for economic or legal reasons related to the debtor's financial
difficulties grants a concession to the debtor that it would not otherwise consider.
a. Troubled debt restructuring
b. Off balance sheet financing

c. Captive finance companies

d. Economic defeasance

2. The deliberate non-disclosure by companies of all their debt in order to make their financial position
look stronger
a. Troubled debt restructuring
b. Off balance sheet financing

c. Captive finance companies

d. Economic defeasance

3. Wholly owned subsidiaries created by parent companies to assist in their financing activities.
a. Troubled debt restructuring
b. Off balance sheet financing

c. Captive finance companies

d. Economic defeasance

4. The restructuring of debt may take the form of

a. suspension of interest payments for a period of time
b. A reduction in the interest rates or extension of maturity date of the debt
c. An exchange of assets or equity securities for the debt
d. Any of these

5. Which of the following types of troubled debt restructuring is not considered a significant economic
transaction?
a.
b.
c.
d.

Transfer of assets in full settlement (asset swap)

Grant of equity interest in full settlement (equity swap)
Modification of terms: total payment under new structure exceeds debt carrying value
Modification of terms: total payment under new structure is less than debt carrying
value

6. A debtor that transfers assets to a creditor to fully settle a payable usually will recognize
a.
b.
c.
d.

an ordinary gain or loss on disposal of assets

an ordinary gain from the concession granted in the restructuring of the debt
an ordinary loss from the concession granted in the restructuring of the debt
an ordinary gain or loss on disposal of the assets, and an ordinary gain from the
concession granted in the restructuring of the debt

7. A debtor that grants an equity interest to the investor as a substitute for a liability
a. Must recognize a gain or loss on the issuance of its capital stock.
b. Must not recognize a gain or loss on the issuance of its capital stock.
c. Must recognize a loss but not a gain on the issuance of its capital stock.
d. some other answers
8. The forms or techniques of off balance sheet financial include
a. Leasing of property or sale of receivables with recourse
b. Captive finance companies and other unconsolidated entities
c. Research and development arrangements and project financing arrangements.
d. Any of these.
Answer Key:
1. b
2. c
3.a
4. a
5. b
6. b
7. a
8. d
9. c

10. d
11. a
12. d
13. d
14. a
15. b
16. d
17. a
18. a
19. a
20. b
21. b
22. b
23. c
24. a
25. b
26. d
27. d
28. b
29. d
30. d
31. a
Bonds Payable
1. d
2. b
3. c
4. a
5. a
6. b
7. a
8. b
9. d
10. d
11. a
12. b
13. b
14. d
15. c
16. d
Other Long Term Debts
1. a
2. b

3. c
4. d
5. c
6. d
7. c
8. d