Question

[25] According to the FASB’s conceptual framework, which of the following is an essential characteristic of a liability?

A. Liabilities must require the obligated entity to pay cash to a recipient entity.

B. Liabilities must be legally enforceable.

C. The identity of the recipient entity must be known to the obligated entity before the time of settlement.

D. Liabilities are obligations resulting from previous transactions or events.

[26] Consolidated financial statements are prepared when a parent-subsidiary relationship exists in recognition of the accounting concept of A. Materiality. B. Entity. C. Verifiability. D. Going concern.

[27] An event that does not result in the recording of a liability is :

A. The sale of an automobile for cash by an automobile manufacturer that provides free maintenance for 2 years.

B. The sale of major league baseball season tickets during the month of January.

C. The declaration of cash dividends to be paid in 4 weeks.

D. The purchase of land for common stock when the land is to be stated at more than the par value of the common stock.

[28] To properly measure an asset on the balance sheet, any related valuation allowance should be reported

A. Contra to the particular asset. B. As a deferred credit. C. As a liability. D. On the income statement.

[29] The Star Company is a service entity that requires customers to place their orders 2 weeks in advance. Star bills its customers on the 15th day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, Star should recognize revenue from its services at the date when

A. A customer places an order. B. The service is provided. C. A billing is mailed. D. A customer’s payment is received.

[30] Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of

A. Consistency. B. Going-concern. C. Matching. D. Substance over form.

Answer 1

25. D. Liabilities are obligations resulting from previous transactions or events.

26.Entity

Its considered as single unit and with the consolidation its the complete picture of the organization.

27. B. The sale of major league baseball season tickets during the month of January.

The Sale is not considered as liability

28. B. As a deferred credit.

29.B. The service is provided.

As soon as the Service is Provided, the revenue will be recognized.

30. C. Matching.

With the matching concept, Expenses need to be matched with the revenue of the same period