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Short-term obligation refinanced on a long-term basis at the end of the reporting period is a current liability

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 12MCQ

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

TRUE OR FALSE?

1. Short-term obligation refinanced on a long-term basis at the end of the reporting period is a current liability.
2. An entity must make the current and noncurrent presentation of assets and liabilities, except when a presentation based on liquidity provides information that is reliable and more relevant.
3. A liability is classified as noncurrent when at the end of the reporting period the entity has the right to defer settlement of the liability for at least twelve months after the reporting period.

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Short-term obligations can be reported as noncurrent liabilities if the company (a) intends to refinance ona long-term basis and (b) demonstrates the ability to do so by actual financing or a formal agreement to doso.
When an entity breaches under a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, the liability is classified as Current under all circumstances Noncurrent under all circumstances Current if the lender has agreed after the reporting period and before the issuance of the statements not to demand payment as a consequence of the breach. Noncurrent if the lender agreed after the reporting period to provide grace period for at least twelve months after the reporting period.
When an entity breaches a covenant under a long-term loan agreement on or before the end of the reporting periodwith the effect that the liability becomes payable on demand, the liability is classified as noncurrent whenI. The lender has agreed after the end if the reporting period and before the financial statements areauthorized for issue not to demand payment as a consequence of the breach.II. The lender has agreed on or before the end of the reporting period to provide a grace period ending atleast twelve months after that date. a. Both I and IIb. Neither I and IIc. I onlyd. II only
Short-term obligations are reported as noncurrent if the entity has a discretion to refinance it as long-term. True False
In which of the following instances would a liability that would otherwise be presented as current is presented as noncurrent a. The liability is payable on demand but the lender promises the entity after the reporting period that the lender will not demand payment in the next 12 months b. The entity enters into a refinancing agreement after the reporting period but before the financial statements are authorized for issue c. The entity enters into a refinancing agreemerit and the agreement is completed by the balance sheet date d. The liability is payable on demand but the entity estimates that it is probable that the lender will not demand payment
When the required balance of the loss allowance decreases, a. the entity recognizes gain. b. the entity recognizes loss. c. the entity recognizes unearned interest to be amortized over the remaining term of the instrument. d. the entity recognizes a deferred charge to be amortized over the remaining term of the instrument.
Which of the following is correct about contingent liabilities and provisions? The terms are interchangeable. A provision is based on an estimate while a contingent liability can be estimated reliably. A provision is disclosed in the statement of financial position while a contingent liability is disclosed in the notes. A contingent liability does not need to be disclosed in an entity's annual report.
1. Define and briefly discuss a loss contingency. 2. What are the similarities and differences of the accounting treatment and financial statement reporting of a loss contingency between U.S. GAAP and IFRS? 3. As a manager, would you like to report a debt as a current or non-current liability if you had a choice? Explain. And under what kind of circumstances could a short-term obligation be reported as a non-current liability?
Which of the following is a characteristic of a current liability? A. It is an avoidable obligation. B. It occurs because of a future transaction or event. C. It cannot be settled with services. D. It creates a present obligation for future payment of cash or services.
TRUE OR FALSE? Short-term obligation refinanced on a long-term basis at the end of the reporting period is a current liability.
1. Which of the following is not an essential characteristic of a liability? * a. It is a present obligation that entails settlement by probable future transfer or use of cash, goods or services. b. The liability must be an unavoidable obligation. c. The transaction or other event creating the obligation must have already occurred. d. The obligation must be settled to an identifiable party.
please ansert the following questions thanks