CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following statement(s) is (are) true?

I. Estimated liabilities have two basic characteristics: the liability is known to exist and precise dollar amount can be determined.
II. An accrued liability is an accrued expense.
III. Unearned fees and customer deposits are examples of unearned revenues.
IV. Working capital is a more stringent measure of solvency than the quick ratio.
A. I, II and III
B. II and III
C. III and IV
Explanation: I. The two basic characteristics are: the liability is known to exist and the precise dollar amount cannot be determined until a later date.

II. When a liability is accrued (recognized before its due date), an offsetting expense (accrued expense) is recorded.

III. Unearned fees and customer deposits are unearned revenues, which are usually classified as current liabilities.

IV. Working capital (current assets-current liabilities) measures uncommitted liquid assets. The quick ratio (the most liquid assets/current liabilities) is a more stringent measurement of solvency.

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