Which of the following statements is not true regarding the reporting of liabilities?

Option a is the valid point.

Explanation:

Option a:

It is a statement that a company prepares to know its profitability during the year. Statement of operations is another name for the income statement. Thus, option a is correct.

Option b:

P&L statement. only records revenue and expenses, either revenue expenditure or revenue receipt are reported in it. It also includes cash expenses or income and non-cash receipts and expenditures as well. Thus this option is incorrect.

Option c:

P/L statement records sales for a particular period of time, not for a particular point in time. It records transactions over a period irrespective of the involvement of cash. It doesn't matter whether the cash is received or not, paid or not, it will be recorded in it. Thus, this option is incorrect.

Option d:

P/L statement shows the financial position of the corporation for a particular period of time, not for a particular point in time. It records transactions over a period. Thus, this option is incorrect.

Answer:

The correct choice is option c: Intangible assets do not have physical existence.

Explanation:

As per the IFRS, intangible assets refer to those assets that can not be touched or identifiable assets that do not have any physical substance. It includes copyrights, goodwill, trademarks, patents, etc.

Wrong options:

Option a: This option is not true as the intangible assets have economic value or substance. Option b: This option is not true as the intangible assets usually occur in the fixed assets section, not in the current assets section.

Option d: This option is not true as the intangible assets usually occur in the fixed assets section, not in the Stockholders' Equity section.

Enter the letter corresponding to the response which best completes each of the following statements or questions.

1
The essential characteristics of a liability do not include: A) The existence of a past causal transaction or event. B) Present obligation. C) The existence of a legal obligation. D) A future sacrifice of economic benefits. 2
Of the following, which usually would not be classified as a current liability? A) A nine-month note to be paid with the proceeds from the sale of common stock. B) Bonds payable maturing within the coming year. C) Estimated warranty liability. D) Subscription revenue received in advance. 3
Which of the following results in an accrued liability? A) Interest on a 6 month bank loan due in two months: Yes
Sales taxes collected on recent sales: Yes B) Interest on a 6 month bank loan due in two months: Yes
Sales taxes collected on recent sales: No C) Interest on a 6 month bank loan due in two months: No
Sales taxes collected on recent sales: No D) Interest on a 6 month bank loan due in two months: No
Sales taxes collected on recent sales: Yes 4
On November 1, Epic Distributors borrowed $24 million cash to fund an expansion of its facilities. The loan was made by WW BancCorp under a short-term line of credit. Epic issued a 9-month, 12% promissory note. Interest was payable at maturity. Epic's fiscal period is the calendar year. In Epic's adjusting entry for the note on December 31, interest expense will be: A) $0 B) $240,000 C) $480,000 D) $640,000 5
On October 1, 2006, Parton Industries borrowed $12 million cash to provide working capital. The loan was made by Second Bank under a short-term line of credit. Parton issued an 8-month, "noninterest-bearing note." 8% is the bank's stated "discount rate." Parton's fiscal period is the calendar year. In Parton's 2006 income statement interest expense for the note will be: A) $0 B) $240,000 C) $360,000 D) $480,000 6
Commercial paper has become an increasingly popular way for companies to raise funds. Which of the following is not true regarding commercial paper? A) Commercial paper is often purchased by other companies as a short-term investment. B) Commercial paper usually is sold in minimum denominations of $25,000 with maturities of greater than 270 days. C) Interest often is discounted at the issuance of the note. D) Usually the interest rate is lower than in a bank loan. 7
On November 1, Shearer Shoes borrowed $18 million cash and issued a 6-month, "noninterest-bearing note." The loan was made by Third Commercial Bank whose stated "discount rate" is 9%. Shearer's effective interest rate on this loan is: A) 8.61% B) 9.0% C) 9.42% D) 9.5% 8
Liabilities payable within one year can be excluded from current liabilities only if: A) The business intends to refinance the obligations on a long-term basis. B) The business has the demonstrated ability to refinance the obligations on a long-term basis. C) Both a and b. D) Liabilities payable within one year always must be classified as current liabilities. 9
Reunion BBQ has $4,000,000 of notes payable due on March 11, 2007, which Reunion intends to refinance. On January 5, 2007, Reunion signed a line of credit agreement to borrow up to $3,500,000 cash on a two-year renewable basis. On the December 31, 2006, balance sheet, Reunion should classify: A) $500,000 of notes payable as short-term and $3,500,000 as long-term obligations. B) $500,000 of notes payable as long-term and $3,500,000 as short-term obligations. C) $4,000,000 of notes payable as short-term obligations. D) $4,000,000 of notes payable as long-term obligations. 10
Which of the following statements concerning lines of credit is untrue? A) A line of credit is an agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork. B) A noncommitted line of credit is a formal agreement that usually requires the firm to pay a commitment fee to the bank. C) Banks sometimes require the company to maintain a compensating balance on deposit with the bank (say 5%) as part of the line of credit agreement. D) Most short-term bank loans are arranged under an existing line of credit. 11
On January 1, 2006, Yukon Company agreed to grant its employees two weeks vacation each year, with the provision that vacations earned in a particular year could be taken the following year. For the year ended December 31, 2006, all twelve of Yukon's employees earned $1,200 per week each. Eight of these vacation weeks were not taken during 2006. In Yukon's 2006 income statement, how much expense should be reported for compensated absences? A) $0 B) $9,600 C) $14,400 D) $28,800 12
An enterprise should accrue a liability for compensation of employees' unpaid vacations if certain conditions exist. Each of the following is a condition for accrual except: A) Compensation for the vacations is probable. B) The employee has the right to carry forward the vacation time beyond the current period. C) The amount of compensation is known. D) The employee benefit has been earned. 13
In its 2006 financial statements, an enterprise should accrue a liability for a loss contingency involving a possible cash payment if certain conditions exist. Each of the following is a condition for accrual except: A) The payment is probable. B) The cause of the loss contingency occurred prior to the end of 2006. C) The amount of payment can be estimated before the 2006 financial statements are issued. D) The obligation is a legally enforceable claim. 14
Which of the following loss contingencies generally do not require accrual? A) Manufacturers' product guarantees. B) Claims by government agencies with probable negative outcomes. C) Obligations due to cash rebate offers. D) Retailers' extended warranties. 15
Warren Advertising becomes aware of a lawsuit after the end of the fiscal year, but prior to the issuance of financial statements. A loss should be accrued and a liability should be reported if the amount can be reasonably estimated and: A) The cause for action occurred prior to the end of the fiscal year. B) The damages would be payable within a year. C) Both a. and b. D) The contingency should not be accrued. 16
A loss contingency should be accrued when the amount of loss is known and the occurrence of the loss is: A) Remote: No; Reasonably possible: No B) Remote: Yes; Reasonably possible: Yes C) Remote: Yes; Reasonably possible: No D) Remote: No; Reasonably possible: Yes 17
During 2006 Green Thumb Company introduced a new line of garden shears that carry a two-year warranty against defects. Experience indicates that warranty costs should be 2% of net sales in the year of sale and 3% in the year after sale. Net sales and actual warranty expenditures were as follows:

	Net sales	Actual warranty expenditures
2006	$   45,000	$1,000
2007	120,000	3,500

At December 31, 2007, Green Thumb should report as a warranty liability of:

A) $900 B) $1,250 C) $3,750 D) $4,500 18
There is a possibility of a safety hazard for a manufactured product. As yet, no claim has been made for damages, though there is a reasonable possibility that a claim will be made. If a claim is made, it is probable that damages will be paid and the amount of the loss can be reasonably estimated. This possible loss must be: A) Accrued: Yes; Disclosed: Yes B) Accrued: Yes; Disclosed: No C) Accrued: No; Disclosed: Yes D) Accrued: No; Disclosed: No 19
Gain contingencies usually are recognized in the income statement when: A) The gain is realized. B) The gain is probable and the amount is known. C) The gain is probable and the amount can be reasonably estimated. D) The gain is reasonably possible and the amount can be reasonably estimated.

What statements are liabilities reported?

Which of the following statements is true about the balance sheet statement?

Which of the following is not one of the elements of financial reporting?

Which of the following are included in liabilities?