Problem 1-4 Multiple choice (IAA)

1. 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 exists
2. The conceptually appropriate method of measuring a liability is
a. Discount the amount of 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 the market rate of interest at the date financial statements are
prepared.
c. Record as a liability the amount of cash that the entity would be required to pay
to eliminate the liability in the ordinary course of business on the date of the
financial statements.
d. Record as a liability the amount of cash actually received when a liability was
incurred.
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 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.

5. Note disclosure for long-term debt generally include all of the following, except
a. Asset pledged as security
b. Call provision
c. Restriction imposed by creditor
d. Name of Creditor