Multiple Choice
Which of the following statements regarding current and long-term liabilities is true?
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9. Current Liabilities
Types of Liabilities
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Which of the following is NOT a characteristic of a liability?
A
It arises from past events
B
It is expected to result in an outflow of resources embodying economic benefits
C
It is a present obligation of the entity
D
It represents future economic benefits to the entity
Verified step by step guidance1
Understand the definition of a liability: A liability is a present obligation of the entity arising from past events, which is expected to result in an outflow of resources embodying economic benefits.
Analyze each characteristic provided in the question: (1) It arises from past events, (2) It is expected to result in an outflow of resources embodying economic benefits, (3) It is a present obligation of the entity, and (4) It represents future economic benefits to the entity.
Compare the characteristics listed with the definition of a liability. Note that liabilities do not represent future economic benefits to the entity; instead, they represent obligations that will lead to an outflow of resources.
Identify the characteristic that does not align with the definition of a liability. The characteristic 'It represents future economic benefits to the entity' is inconsistent with the nature of liabilities.
Conclude that the correct answer is the characteristic that does not describe a liability, which is 'It represents future economic benefits to the entity.'
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