#1
Which of the following is a current liability?
Accounts payable
ExplanationShort-term debts owed by a company to its suppliers.
#2
What is a contingent liability?
A potential liability that depends on the outcome of a future event
ExplanationA possible obligation depending on uncertain future events.
#3
Which financial statement reports a company's liabilities?
Balance sheet
ExplanationA snapshot of a company's financial position at a specific point in time.
#4
Which of the following is an example of a long-term liability?
Mortgage payable
ExplanationDebts payable over a period longer than one year, such as mortgages.
#5
Which of the following is a characteristic of a liability?
It represents an obligation to transfer economic benefits
ExplanationAn obligation requiring the sacrifice of resources in the future.
#6
Which of the following is an example of a contingent liability?
Pending lawsuit
ExplanationA possible obligation depending on the outcome of a legal dispute.
#7
Which of the following is an example of a current liability?
Accounts payable
ExplanationShort-term debts due within a year, often to suppliers.
#8
What is a non-current liability?
A liability due after one year
ExplanationObligations not due within the next accounting year.
#9
Which type of liability is considered a long-term liability?
Bonds payable
ExplanationDebts due for payment beyond one year, often issued as bonds.
#10
How are liabilities typically classified on a balance sheet?
Based on their liquidity
ExplanationOrdered by how soon they must be settled, from most to least liquid.
#11
Which of the following is an example of a deferred revenue liability?
Unearned subscription revenue
ExplanationIncome received but not yet earned, typically from prepaid services.
#12
What is the formula to calculate the debt-to-equity ratio?
Total liabilities / Total equity
ExplanationA measure of a company's financial leverage and risk.
#13
What is the main characteristic of a contingent liability?
It depends on a future event
ExplanationObligations contingent on uncertain future circumstances.
#14
What is the purpose of the debt service coverage ratio (DSCR)?
To measure a company's ability to pay its long-term debt obligations
ExplanationAssesses a company's capacity to meet its debt obligations.
#15
Which of the following is a characteristic of a contingent liability?
It is probable and the amount can be estimated reliably
ExplanationAn anticipated liability with a reasonably estimable amount.
#16
What is the formula for calculating the interest coverage ratio?
Operating income / Total interest expense
ExplanationMeasures a company's ability to cover interest expenses with operating income.
#17
What does the debt ratio measure?
The proportion of a company's assets financed by debt
ExplanationIndicates the extent of a company's reliance on debt financing.
#18
What is the purpose of the debt-to-equity ratio?
To measure a company's leverage and financial risk
ExplanationEvaluates the proportion of debt and equity in a company's financing.
#19
What is a lease liability?
The obligation to pay rent on a leased asset
ExplanationAn obligation arising from leasing an asset, requiring rental payments.
#20
What is a callable bond?
A bond that can be redeemed by the issuer before its maturity date
ExplanationA bond giving the issuer the right to repay it before maturity.
#21
What is a subordinated debt?
Debt that has a lower priority of payment than other debts in case of bankruptcy
ExplanationDebt ranked below other debts for repayment, often with higher risk.
#22
What is a finance lease?
A lease that transfers substantially all the risks and rewards incidental to ownership of the leased asset
ExplanationA lease agreement where the lessee bears most of the risks and benefits of ownership.