Problem 1-5 Multiple choice (IAA)

1. Among the short-term obligations as of the year-end are notes payable with a
certain bank. These are 90-day notes, renewable for another 90-day period. These
notes should be classified
a. Current liabilities
b. Deferred credits
c. Noncurrent liabilities
d. Intermediate debt
2. At year-end, an entity has 120-day note payable outstanding. The entity has
followed the policy of replacing the note rather than repaying it over the last three
years. The entity's treasurer says that this policy is expected to continue
indefinitely, and the arrangement is acceptable to the bank to which the note was
issued. What is the proper classification of the note in the year-end statement of
financial position?
a. Dependent on the intention of management
b. Dependent on the actual ability to refinance
c. Current liability, unless specific refinancing criteria are met
d. Noncurrent liability
3. An entity had a note payable due next year. After the end of reporting period and
before the issuance of the current year financial statements, the entity issued
long-term bonds payable. Proceeds from the bonds were used to repay the note
when due. How should the entity classify the note payable at current year-end?
a. Current liability with separate disclosure at the note refinancing.
b. Current liability with no disclosure required.
c. Noncurrent liability with separate disclosure of the note refinancing
d. Noncurrent liability with no separate disclosure required
4. An entity has a loan due for repayment in six months' time, but the entity has the
option to refinance for repayment two years later. The entity plans to refinance this
loan. In which section of the statement of financial position should this loan be
presented?
a. Current liabilities
b. Current assets
c. Noncurrent liabilities
d. Noncurrent assets

5. Which of the following circumstances may result in the classification of a liability

as current?
a. Short-term obligations refinanced with long-term debt at the end of reporting
period
b. Debts to be liquidated from funds that have been accumulated and are reported
as noncurrent assets
c. Violation of provisions of a debt agreement
d. Obligations for advance collections that involve long term deferment of the
delivery of goods or services