Liability MCQs with Answers

Liability MCQs with Answers

Which of the following is considered a current liability?
a) Long-term loan
b) Accounts payable
c) Mortgage payable
d) Notes receivable
Answer: b) Accounts payable

Which financial statement reports a company’s liabilities?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: b) Balance sheet

What is the term used to describe a company’s obligation to provide goods or services to customers in the future?
a) Accounts payable
b) Accrued expenses
c) Deferred revenue
d) Notes payable
Answer: c) Deferred revenue

Which of the following represents a long-term liability?
a) Unearned revenue
b) Wages payable
c) Bank overdraft
d) Bonds payable
Answer: d) Bonds payable

How are liabilities classified on the balance sheet?
a) Current and non-current
b) Assets and liabilities
c) Operating and non-operating
d) Prepaid and unearned
Answer: a) Current and non-current

What type of liability is a company’s obligation to pay employee salaries and wages?
a) Accounts payable
b) Notes payable
c) Unearned revenue
d) Accrued expenses
Answer: d) Accrued expenses

Which of the following is an example of contingent liability?
a) Accounts payable
b) Mortgage payable
c) Lawsuit against the company
d) Trade receivables
Answer: c) Lawsuit against the company

What does the term “current ratio” measure?
a) A company’s ability to generate profits
b) A company’s liquidity and short-term solvency
c) The proportion of debt in a company’s capital structure
d) The efficiency of a company’s operations
Answer: b) A company’s liquidity and short-term solvency

Liability MCQs with Answers

What is the formula to calculate the debt-to-equity ratio?
a) Total liabilities / Total assets
b) Total liabilities / Shareholders’ equity
c) Total assets / Shareholders’ equity
d) Total assets / Total liabilities
Answer: b) Total liabilities / Shareholders’ equity

Which of the following represents a contingent liability?
a) Mortgage payable
b) Accounts payable
c) Warranty obligations
d) Salaries payable
Answer: c) Warranty obligations

What is the term used to describe a company’s obligations that are not yet due for payment?
a) Accrued expenses
b) Accounts payable
c) Prepaid expenses
d) Deferred revenue
Answer: a) Accrued expenses

Which of the following is an example of a non-current liability?
a) Trade payables
b) Income tax payable
c) Short-term bank loan
d) Long-term lease obligation
Answer: d) Long-term lease obligation

Liability MCQs with Answers

Which financial ratio measures a company’s ability to meet its short-term obligations using its most liquid assets?
a) Quick ratio
b) Debt ratio
c) Return on assets
d) Gross profit margin
Answer: a) Quick ratio

Which of the following is a common example of a contingent liability?
a) Salaries payable
b) Bank loan
c) Warranty provision
d) Accounts receivable
Answer: c) Warranty provision

How are long-term liabilities reported on the balance sheet?
a) Under current liabilities
b) Under owner’s equity
c) Under non-current liabilities
d) Under operating expenses
Answer: c) Under non-current liabilities

What is the term used to describe a company’s legal or moral obligations to make future payments that are uncertain in terms of timing or amount?
a) Accrued liabilities
b) Contingent liabilities
c) Operating liabilities
d) Current liabilities
Answer: b) Contingent liabilities

Liability MCQs with Answers

Which of the following represents an example of an operating liability?
a) Mortgage payable
b) Accounts payable
c) Deferred tax liabilities
d) Bank overdraft
Answer: b) Accounts payable

Which financial statement would provide information about changes in a company’s long-term liabilities over time?
a) Income statement
b) Statement of cash flows
c) Statement of changes in equity
d) Statement of retained earnings
Answer: c) Statement of changes in equity

What is the purpose of a debt covenant in a loan agreement?
a) To protect the borrower from defaulting on payments
b) To establish the interest rate for the loan
c) To provide collateral for the loan
d) To impose certain restrictions on the borrower
Answer: d) To impose certain restrictions on the borrower

How does the issuance of a bond affect a company’s liabilities?
a) It increases both current and long-term liabilities.
b) It decreases both current and long-term liabilities.
c) It increases current liabilities and decreases long-term liabilities.
d) It decreases current liabilities and increases long-term liabilities.
Answer: d) It decreases current liabilities and increases long-term liabilities.

Liability MCQs with Answers

Which of the following represents an example of a contingent liability?
a) Accounts receivable
b) Bank loan
c) Lawsuit pending against the company
d) Prepaid expenses
Answer: c) Lawsuit pending against the company

What is the term used to describe the portion of a long-term liability that is due within the next 12 months?
a) Accrued liability
b) Current portion of long-term debt
c) Contingent liability
d) Deferred liability
Answer: b) Current portion of long-term debt

Which financial ratio measures the proportion of a company’s total liabilities to its total assets?
a) Current ratio
b) Debt-to-equity ratio
c) Return on assets
d) Gross profit margin
Answer: b) Debt-to-equity ratio

Which of the following represents a non-financial liability for a company?
a) Accounts payable
b) Environmental cleanup obligation
c) Bank loan
d) Accrued salaries
Answer: b) Environmental cleanup obligation

Liability MCQs with Answers

How are contingent liabilities disclosed in a company’s financial statements?
a) They are not disclosed since they are uncertain obligations.
b) They are recorded as actual liabilities.
c) They are disclosed in the footnotes to the financial statements.
d) They are disclosed on the income statement.
Answer: c) They are disclosed in the footnotes to the financial statements.

What is the term used to describe a company’s obligation to pay income taxes in the future?
a) Accrued expenses
b) Deferred revenue
c) Income tax payable
d) Accounts payable
Answer: c) Income tax payable

Which of the following represents a long-term liability that a company incurs when it purchases a building?
a) Accrued expenses
b) Accounts payable
c) Mortgage payable
d) Notes receivable
Answer: c) Mortgage payable

Which financial statement would provide information about a company’s changes in its long-term debt balance over a period?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: c) Statement of cash flows

Liability MCQs with Answers

What does the term “working capital” represent?
a) The difference between current assets and current liabilities
b) The difference between long-term assets and long-term liabilities
c) The total assets of a company
d) The total liabilities of a company
Answer: a) The difference between current assets and current liabilities

How does an increase in accounts payable impact a company’s financial statements?
a) It increases both assets and liabilities.
b) It decreases both assets and liabilities.
c) It increases assets and decreases liabilities.
d) It decreases assets and increases liabilities.
Answer: c) It increases assets and decreases liabilities.

Which of the following represents an example of a current liability?
a) Bonds payable
b) Prepaid expenses
c) Notes receivable
d) Long-term loan
Answer: b) Prepaid expenses

What is the term used to describe a liability that is expected to be settled within one year or the operating cycle, whichever is longer?
a) Accrued liability
b) Current liability
c) Contingent liability
d) Non-current liability
Answer: b) Current liability

Liability MCQs with Answers

Which financial ratio measures a company’s ability to pay off its short-term obligations using its current assets?
a) Debt ratio
b) Quick ratio
c) Return on equity
d) Gross profit margin
Answer: b) Quick ratio

Which of the following represents an example of a long-term liability?
a) Accounts payable
b) Bank overdraft
c) Income tax payable
d) Debentures
Answer: d) Debentures

How are contingent liabilities disclosed in a company’s financial statements?
a) They are recorded as actual liabilities.
b) They are not disclosed since they are uncertain obligations.
c) They are disclosed in the footnotes to the financial statements.
d) They are disclosed on the income statement.
Answer: c) They are disclosed in the footnotes to the financial statements.

What is the term used to describe a company’s obligation to provide employee benefits after their employment ends?
a) Accrued expenses
b) Deferred revenue
c) Pension liability
d) Accounts payable
Answer: c) Pension liability

Liability MCQs with Answers

Which of the following represents an example of an unearned revenue liability?
a) Salaries payable
b) Mortgage payable
c) Warranty obligations
d) Advance customer payments
Answer: d) Advance customer payments

What is the purpose of a debt covenant in a loan agreement?
a) To protect the lender from defaulting on payments
b) To establish the interest rate for the loan
c) To provide collateral for the loan
d) To impose certain restrictions on the borrower
Answer: d) To impose certain restrictions on the borrower

How does an increase in accrued expenses impact a company’s financial statements?
a) It increases both assets and liabilities.
b) It decreases both assets and liabilities.
c) It increases assets and decreases liabilities.
d) It decreases assets and increases liabilities.
Answer: c) It increases assets and decreases liabilities.

Liability MCQs with Answers

Which of the following is an example of a contingent liability?
a) Accounts receivable
b) Bank loan
c) Lawsuit pending against the company
d) Prepaid expenses
Answer: c) Lawsuit pending against the company

What is the term used to describe a company’s obligation to pay interest on a loan?
a) Accrued expenses
b) Deferred revenue
c) Interest payable
d) Accounts payable
Answer: c) Interest payable

Which financial ratio measures the proportion of a company’s total assets financed by debt?
a) Current ratio
b) Debt-to-assets ratio
c) Return on equity
d) Gross profit margin
Answer: b) Debt-to-assets ratio

Which of the following represents an example of a non-financial liability for a company?
a) Accounts payable
b) Environmental cleanup obligation
c) Bank loan
d) Accrued salaries
Answer: b) Environmental cleanup obligation

Liability MCQs with Answers

What is the term used to describe a company’s obligation to pay dividends to its shareholders?
a) Accrued expenses
b) Deferred revenue
c) Dividends payable
d) Accounts payable
Answer: c) Dividends payable

Which of the following represents an example of a finance lease liability?
a) Mortgage payable
b) Accounts payable
c) Deferred tax liabilities
d) Lease obligation
Answer: d) Lease obligation