Question

1. When the occurrence of a liability is dependent on the outcome of some future event, the liability is referred to as a(n)

a) commitment.

b) accounts payable.

c) contingent liability

d) accrued liability.

2. A pension plan that pays employees benefits upon retirement based on how well the investments in the pension plan perform is called a

a) defined contribution plan.

b) defined performance plan.

c) defined investment plan.

d) defined benefit plan.

3. How should a liability that has a probable chance of occurring and can be reasonably estimated be disclosed?

Accrual        Footnote

a) yes, no

b) yes, yes

c) no, yes

d) no, no

4. Companies must always accrue interest between the last loan payment date and the company’s reporting date

.a) True

b) False

5. A temporary difference is a difference between tax and accounting income that will not reverse in a future period.

a) True

b) False

Answer 1

Question 1

The correct answer is d. Contingent Liability.

When the occurrence of liability is dependent on the outcome of some future event, the liability is referred to as a contingent liability

Question 2

The correct answer is d. Defined Pension Plan.

Under defined pension pan, employee benefits are computed by considering factors like tenure of employment, salary history.

Question 3

The correct answer is c. No, Yes.

When the liability has a probable chance of occurrence, then it should be disclosed in the Footnote.

Question 5

The correct answer is FALSE

The permanent differences are the differences between taxable income and accounting income for a period and do not reverse subsequently.