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CH01114TEST
Chapter 11 and 14 liabilities
True/False Questions:
1. A liability is a probable future payment of assets or services that a company is presently obligated
to make as a result of past transactions or events.
Answer: True
2. A single liability can be divided between current and noncurrent liabilities.
Answer: True
3. 6. A liability does not exist if there is any uncertainty about whom to pay, when to pay, or how much to pay.
Answer: False
4. Trade accounts payable are amounts owed to suppliers for products or services purchased on credit.
Answer: True
5. Unearned revenues is another name for sales.
Answer: False
6. Sales taxes payable is credited and cash is debited when companies send sales taxes collected from
customers to the government.
Answer: False
7. Known liabilities are obligations set by agreements, contracts, or laws, and are measurable and
definitely determinable.
Answer: True
8. A contingent liability is a potential obligation that depends on a future event arising from a future transaction or event.
Answer: False
9. The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.
Answer: True
10. Debt guarantees are not disclosed because the guarantor is not the primary debtor.
Answer: False
11. Accounting for contingent liabilities covers three categories. (1) The future event is probable and the amount cannot be reasonably estimated. (2) The future event is remote or unlikely to recur. (3) The likelihood of the liability to occur is impossible.
Answer: False
12. A high value for the times interest earned ratio means that a company is a higher risk borrower.
Answer: False
13. The times interest earned ratio is calculated by dividing income before interest expense and income taxes by interest expense.
Answer: True
14. When the times interest earned ratio declines, the likelihood of default on liabilities increases.
Answer: True
15. A short-term note payable is a written promise to pay
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