Multiple Choice: Reporting Liabilities Select the correct answer for each of the following:

1. At the time they are recorded, most noncurrent liabilities normally are valued at:

a. The present value of future cash payments.

b. Lower-of-cost-or-market.

c. Market value.

d. The amount that must be paid.
2. Current liabilities are likely to arise from:

a. Purchase of inventory and operating supplies.

b. Receipt of advance payment for services to be rendered.

c. Accrued interest on long-term loans.

d. All of the above.
3. An example of an estimated liability is:

a. Interest payable on bonds.

b. Wages payable.

c. Allowance for uncollectibles.

d. Product warranties obligation.
4. What is an advantage of issuing long-term debt rather than common stock in raising capital?

a. Interest payments are tax deductible and dividends are not.

b. The par value of a bond is tax deductible and the par value of stock is not.

c. Failure to make an interest payment will not reduce the market price of stock as much as failure to make a dividend payment.

d. While the number of shares of stock a company can issue is limited, the number of bonds that can be sold is unlimited.
5. A number of operating liabilities may be recorded at the end of the year and are usually reported in the financial statements as “accrued liabilities.” Which of the following would normally be included in accrued liabilities?

a. Depreciation for the year.

b. Insurance premiums paid in advance.

c. Unpaid salaries.

d. Estimated allowance for doubtful accounts.