Problem 1-6 Multiple choice (IAA)

1. Which of the following is a characteristics of a current liability but not a current

liability ?
a. Unavoidable obligation
b. Present obligation requires settlement by probable future transfer or use of cash,
goods or services.
c. Settlement is expected wothin the normal operating cycle or within 12 months,
whichever is longer.
d. The obligating event creating the liability has already occurred.

2. Which of the following is not considered a characteristics of liability ?

a. Present obligation
b. Arises from past event
c. Results in an outflow of resources
d. Liquidation is reasonably expected to require use of current assets
3. What is the relationship between the current liabilities and an operating cycle?
a. Liquidation of current liabilities is reasonably expected within the operating
cycle or one year, whichever is higher.
b. Current liabilities aren the result of operating transactions.
c. Current liabilities cannot exceed the amount incurred in one operating cycle.
d. There is no relationship between the two.
4. What is the relationship between present value and the concept of liability?
a. Present value is used to measure certain liabilities.
b. Present value is not used to measure liabilities.
c. Present value is used to measure all liabilities.
d. Present value is only used to measure noncurrent liabilities.
5. Which of the following is NOT an acceptable presentation of current liabilities?
a. Listing current liabilities in the order of maturity.
b. Listing current liabilities according to amount.
c. Offsetting current liabilities against assets that are to be applied to their
liquidation.

d. Showing current liabilities in the order of liquidation preference.