Question Details

Why is the liability section of the balance sheet 



	1.	Of the following items, the only one which should not be classified as a current liability is
a.	current maturities of long-term debt.
b.	sales taxes payable.
c.	short-term obligations expected to be refinanced.
d.	unearned revenues.

	2.	An account which would be classified as a current liability is
a.	dividends payable in the form of a company's stock.
b.	accounts payable—debit balances.
c.	losses expected to be incurred within the next twelve months in excess of the company's insurance coverage.
d.	none of these answers are correct.

	3.	Which of the following is a characteristic of a current liability but not a long-term liability?
a.	Unavoidable obligation.
b.	Present obligation that entails settlement by probable future transfer or use of cash, goods, or services.
c.	Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.
d.	Transaction or other event creating the liability has already occurred.

	4.	Which of the following is not considered a part of the definition of a liability?
a.	Unavoidable obligation.
b.	Transaction or other event creating the liability has already occurred.
c.	Present obligation that entails settlement by probable future transfer or use of cash, goods, or services.
d.	Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

	5.	Why is the liability section of the balance sheet of primary importance to bankers?
a.	To evaluate the entity's credit quality.
b.	To assist in understanding the entity's liquidity.
c.	To better understand sources of repayment.
d.	To evaluate operating efficiency.



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