Problem 4-10 Multiple choice (IAA)

1. What condition is necessary to recognize an environmental liability?

a. The entity has an existing legal obligation and the amount of the liability can be
reliably estimated.
b. The entity can reliably estimate the amount of the liability.
c. The entity has a existing legal obligation.
d. Obligating event has occurred.

2. Which of the following is not considered when evaluating whether or not to

received a liability for pending litigation?

a. Time period in which the underlying cause of action occurred.

b. The type of litigation involved.
c. The probability of an unfavorable outcome.
d. The ability to make a reliable estimate of the amount of the loss.

3. Which of the following is required to disclose regarding risk and uncertainties that
exist?

a. Factor causing an estimate to be sensitive.

b. The potential impact of estimate when it is reasonably possible that the estimate
will change in the future.
c. The potential impact of estimate when it is remotely possible that the estimate
will change in the future.
d. A description of operations both within and outside of the home country.

4. A contingent liability is

a. An estimated liability.
b. An event which is not recognized because it is not probable that an outflow will
be required or the amount cannot be reliably estimated.
c. A potential large liability.
d. A potential small liability.

5. How should incurred cost associated with relocating employees in a restructuring

be accounted for?

a. Measured at fair value and recognized over two years.

b. Measured at fair value and recognized when the liability is incurred.
c. Recognized when cost are paid.
d. Measured at fair value and treated as prior period error.

ANSWERS:
1. A
2. A
3. B
4. B
5. B