Long Term Liabilities MCQs
Which of the following is an example of a long-term liability?
a) Accounts payable
b) Short-term bank loan
c) Mortgage payable
d) Accrued expenses
Answer: c) Mortgage payable
Long-term liabilities are typically due for payment within:
a) One year
b) Three years
c) Five years
d) More than five years
Answer: d) More than five years
A company issues bonds with a maturity period of 10 years. What type of long-term liability is this?
a) Mortgage payable
b) Notes payable
c) Lease obligation
d) Bonds payable
Answer: d) Bonds payable
Which financial statement would include information about long-term liabilities?
a) Income statement
b) Statement of cash flows
c) Statement of retained earnings
d) Balance sheet
Answer: d) Balance sheet
Long-Term Liabilities MCQs with Answers
How are long-term liabilities classified on the balance sheet?
a) Current liabilities
b) Non-current liabilities
c) Operating liabilities
d) Contingent liabilities
Answer: b) Non-current liabilities
Which of the following is an example of a long-term liability for an individual?
a) Credit card debt
b) Student loan
c) Medical bill
d) Monthly rent payment
Answer: b) Student loan
What is the purpose of disclosing long-term liabilities in financial statements?
a) To show the company’s ability to generate profits
b) To provide information about the company’s sources of financing
c) To calculate the company’s net income
d) To assess the company’s liquidity position
Answer: b) To provide information about the company’s sources of financing
A company has a long-term loan with an annual interest rate of 8%. The loan requires annual principal and interest payments for the next five years. What type of long-term liability is this?
a) Mortgage payable
b) Notes payable
c) Lease obligation
d) Term loan
Answer: d) Term loan
Long-Term Liabilities MCQs with Answers
What is the difference between a long-term liability and a short-term liability?
a) Long-term liabilities are due within one year, while short-term liabilities are due within five years.
b) Long-term liabilities have a higher interest rate than short-term liabilities.
c) Long-term liabilities are paid off over an extended period, while short-term liabilities are due within one year.
d) Long-term liabilities are reported on the income statement, while short-term liabilities are reported on the balance sheet.
Answer: c) Long-term liabilities are paid off over an extended period, while short-term liabilities are due within one year.
Which of the following is an example of a long-term liability related to employee benefits?
a) Accounts payable
b) Salary payable
c) Pension obligation
d) Income tax payable
Answer: c) Pension obligation
A company issues a bond with a face value of $1,000 and a maturity period of 20 years. The bond pays an annual interest of $80. What is the bond’s coupon rate?
a) 4%
b) 6%
c) 8%
d) 10%
Answer: c) 8%
Which of the following is an example of a long-term liability resulting from a legal claim against the company?
a) Accounts payable
b) Warranty liability
c) Lawsuit settlement payable
d) Accrued expenses
Answer: c) Lawsuit settlement payable
Long-Term Liabilities MCQs with Answers
A company has a long-term lease agreement for a property with an annual payment of $10,000 for the next five years. What type of long-term liability is this?
a) Mortgage payable
b) Notes payable
c) Lease obligation
d) Bonds payable
Answer: c) Lease obligation
Which of the following financial ratios is useful in evaluating a company’s ability to meet its long-term debt obligations?
a) Current ratio
b) Debt-to-equity ratio
c) Return on assets ratio
d) Gross profit margin ratio
Answer: b) Debt-to-equity ratio
What is the purpose of calculating the present value of long-term liabilities?
a) To determine the amount of interest expense
b) To assess the company’s solvency
c) To estimate the future cash outflows
d) To calculate the bond’s coupon rate
Answer: c) To estimate the future cash outflows
A company has an outstanding long-term loan of $50,000. The company makes annual principal payments of $10,000. What will be the remaining balance after three years?
a) $20,000
b) $30,000
c) $40,000
d) $50,000
Answer: c) $40,000
Long-Term Liabilities MCQs with Answers
Which of the following is an example of a contingent long-term liability?
a) Bank loan
b) Accounts payable
c) Lawsuit potential damages
d) Lease payment
Answer: c) Lawsuit potential damages
A company has a defined benefit pension plan. What type of long-term liability is associated with this plan?
a) Accounts payable
b) Accrued expenses
c) Pension obligation
d) Warranty liability
Answer: c) Pension obligation
When calculating the interest expense on a long-term liability, which of the following is used?
a) Maturity date
b) Coupon rate
c) Principal amount
d) Market value
Answer: b) Coupon rate
Which financial statement provides information about the changes in long-term liabilities over a specific period?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of retained earnings
Answer: c) Statement of cash flows
Long-Term Liabilities MCQs with Answers
Which of the following is an example of a long-term liability related to environmental cleanup costs?
a) Accounts payable
b) Warranty liability
c) Environmental remediation liability
d) Income tax payable
Answer: c) Environmental remediation liability
A company issues bonds with a face value of $1,000,000 and a stated interest rate of 5%. The bonds mature in 10 years. What will be the total interest expense over the life of the bonds?
a) $500,000
b) $1,000,000
c) $1,500,000
d) $5,000,000
Answer: c) $1,500,000
Which of the following is an example of a long-term liability resulting from an employee retirement plan?
a) Accounts payable
b) Salaries payable
c) Pension liability
d) Accrued expenses
Answer: c) Pension liability
What is the purpose of disclosing the terms and conditions of long-term liabilities in the financial statements?
a) To calculate the company’s net income
b) To assess the company’s liquidity position
c) To comply with legal and accounting standards
d) To determine the company’s operating expenses
Answer: c) To comply with legal and accounting standards
Long-Term Liabilities MCQs with Answers
A company enters into a long-term lease agreement with fixed monthly payments. How are these lease payments typically classified?
a) Current liabilities
b) Non-current liabilities
c) Operating expenses
d) Prepaid expenses
Answer: b) Non-current liabilities
Which of the following is an example of a long-term liability related to deferred income taxes?
a) Accounts payable
b) Income tax payable
c) Long-term tax liability
d) Accrued expenses
Answer: c) Long-term tax liability
A company has outstanding bonds with a carrying value of $500,000 and a maturity value of $600,000. How will the bonds be reported on the balance sheet?
a) $500,000 as a long-term liability
b) $600,000 as a long-term liability
c) $100,000 as a short-term liability
d) $100,000 as a long-term liability
Answer: a) $500,000 as a long-term liability
What is the purpose of calculating the debt service coverage ratio?
a) To assess the company’s profitability
b) To evaluate the company’s liquidity position
c) To determine the company’s tax liability
d) To measure the company’s ability to meet its debt obligations
Answer: d) To measure the company’s ability to meet its debt obligations
Long-Term Liabilities MCQs with Answers
Which of the following is an example of a long-term liability resulting from a product warranty?
a) Accounts payable
b) Warranty liability
c) Income tax payable
d) Accrued expenses
Answer: b) Warranty liability
How are long-term liabilities affected when a company issues new shares of common stock?
a) Decreased
b) Increased
c) Unaffected
d) Converted to short-term liabilities
Answer: c) Unaffected