Intermediate Accounting, Volume 2, 2e

Intermediate Accounting, Volume 2, 2e Chapter 11 – Current Liabilities and Contingencies 11-1 Copyright © 2014 Pearson Canada, Inc.Intermediate Accounting, Vol. 2, 2e (Lo/Fisher) Chapter 11 Current Liabilities and Contingencies 11.1 Learning Objective 1 1) Which of the following characteristic is required for a liability under IFRS Framework?

• A past obligation.
• A present obligation.
• An unknown obligation.
• A future obligation.

Answer: B

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.2) Which of the following characteristic is required for a liability under IFRS Framework?

• Arises from a past obligation.
• Is a present obligation.
• Is an unknown obligation.
• Is a future obligation.

Answer: B

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.3) Which of the following characteristic is required for a liability under IFRS Framework?

• Arises from a past event.
• Arises from a non-financial transaction.
• Arises from a future transaction.
• Arises from a forecasted transaction.

Answer: A

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.4) Which of the following characteristic is required for a "liability" under IFRS Framework?

• Expected to result in the inflow of economic benefits.
• Expected to result in the inflow of economic benefits that are measurable.
• Expected to result in the outflow of resources embodying economic benefits.
• Expected to result in the outflow of economic benefits that are virtually certain.

Answer: C

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.Intermediate Accounting Vol 2 Canadian 2nd Edition Lo Test Bank Visit TestBankDeal.com to get complete for all chapters

Intermediate Accounting, Volume 2, 2e Chapter 11 – Current Liabilities and Contingencies 11-2 Copyright © 2014 Pearson Canada, Inc.5) Which of the following is correct about a "liability" under IFRS Framework?

• A future obligation arising from past events, the settlement of which is expected to result in an inflow

of resources.

• A present obligation arising from past events, the settlement of which is expected to result in an inflow

of resources.

• A past obligation arising from past events, the settlement of which is expected to result in an outflow

of resources.

• A present obligation arising from past events, the settlement of which is expected to result in an

outflow of resources.

Answer: D

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.6) Which is an example of a liability?

• The decision to borrow $150,000 from the ABC Bank on January 15, 2013.
• Withdrawing $10,000 from the operating line of credit on January 15, 2013.
• Selecting the supplier to provide the raw materials for the manufacturing process.
• Choosing the site for a future plant expansion from a list of several possible choices.

Answer: B

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.7) Which of the following is a financial liability?

• A magazine publisher's obligation to provide the magazine monthly for an agreed upon period.
• Warranties.
• Accounts payable.
• Income taxes payable.

Answer: C

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.8) What are "liabilities"? Differentiate between financial liabilities and nonfinancial liabilities.

Answer:

∙ Liabilities are present obligations of the entity arising from past events that are expected to result in an outflow of resources.∙ Financial liabilities are contractual obligations that will be settled in cash or by transferring another financial asset to the creditor.∙ A non-financial liability is an obligation that meets the definition of a liability but is not a financial liability. It is settled through the provision of goods or delivery of services—not by settlement in cash or another financial asset.

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.

Intermediate Accounting, Volume 2, 2e Chapter 11 – Current Liabilities and Contingencies 11-3 Copyright © 2014 Pearson Canada, Inc.9) Why is it important to distinguish financial from non-financial liabilities?Answer: IFRS requires that some financial liabilities be measured at their fair value rather than at amortized cost.

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.10) Explain the meaning of "provision" and give an example.Answer: A provision is a liability for which there is some uncertainty as to the timing or amount of payment. It should be noted, that having uncertainty over the amount or timing of payments does not imply that a liability cannot be reliably measured. For example, payments for warranty costs are uncertain in terms of both amount and timing, yet we would still record a liability for the estimated cost of fulfilling warranties.

Diff: 1

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.11) Explain some of the challenges that exist in determining the amount of a "liability" by identifying factors that influence the value of the indebtedness.Answer: Factors include whether: ∙ the obligation is a financial liability or a non-financial liability; ∙ the market rate of interest is different from that recorded in the loan documentation; ∙ the market rate of interest has changed since the liability was incurred; ∙ there is uncertainty about the amount owed; ∙ the amount owed depends upon the outcome of a future event; or ∙ the obligation is payable in a foreign currency.

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.12) Which of the following is correct about a "liability" under IFRS Framework?

• A future obligation arising from current events, the settlement of which is expected to result in an

outflow of resources.

• A present obligation arising from current events, the settlement of which is expected to result in an

outflow of resources.

• A future obligation arising from past events, the settlement of which is expected to result in an outflow

of resources.

• A present obligation arising from past events, the settlement of which is expected to result in an

outflow of resources.

Answer: D

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.

Intermediate Accounting, Volume 2, 2e Chapter 11 – Current Liabilities and Contingencies 11-4 Copyright © 2014 Pearson Canada, Inc.13) Which statement is correct under the IFRS definition for a "liability"?

• The obligating event must be probable before the liability can be recognized.
• The obligating event must be virtually certain before the liability can be recognized.
• A reliable measure of the obligation must exist before the liability can be recognized.
• A precise measure of the obligation must exist before the liability can be recognized.

Answer: C

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.14) Which statement regarding liabilities is not correct under the IFRS Framework?

• A reliable estimate for an asset is presumed to exist.
• A provision exists if the timing of payment is uncertain.
• A provision exists if the amount of payment is uncertain.
• A reliable estimate for a liability is presumed to exist.

Answer: A

Diff: 2

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.15) Which statement is correct about financial and non-financial liabilities?

• A non-financial liability is a contractual obligation to deliver cash to another party.
• A non-financial liability does not meet all of the criteria for a "liability."
• The two liabilities may be valued differently for financial reporting purposes.
• A non-financial liability is measured at fair value rather than amortized cost.

Answer: C

Diff: 3

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.16) Which is not an example of a non-financial liability?

• Warranty liability.
• Bank loan.
• Income taxes payable.
• Deferred revenue.

Answer: B

Diff: 3

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.17) Which is not an example of a financial liability?

• Payment to supplier for raw material received.
• Obligation to repay a US dollar bank loan.
• Obligation under a finance lease.
• Obligation under a customer loyalty program.

Answer: D

Diff: 3

Skill: Concept

Objective: 11.1 Describe the nature of liabilities and differentiate between financial and non-financial liabilities.