Question

Indicate which of the following are necessary characteristics for an item to be considered a liability. select one:

a. the transfer of an asset or the obligation to provide a service is assured.
b. the magnitude of the obligation must be material relative to the company's assets.
c. the obligation to transfer assets or provide services must be unavoidable if the existence of the obligation is at least probable.
d. the obligation arises from a past event.
e. an explicit interest rate must be stated.
f. a, c, and d
g. c and d
h. all of the above

Answer 1

The necessary characteristics for an item to be considered a liability are that (a) the transfer of an asset or service is assured, (c) the obligation is unavoidable and probable, and (d) it arises from a past event.

Step-by-step explanation:

Among the options provided for which characteristics are necessary for an item to be considered a liability, the correct answer is f. a, c, and d. Here's why:

• (a) The transfer of an asset or the obligation to provide a service is assured.
• (c) The obligation to transfer assets or provide services must be unavoidable if the existence of the obligation is probable.
• (d) The obligation arises from a past event.

An obligation doesn't need to have a stated interest rate (eliminating choice e), nor does the magnitude of the obligation need to be material relative to the company's assets (eliminating choice b) for it to be considered a liability. The three characteristics mentioned establish the essential nature of a liability, where a past transaction or event creates a present obligation that will likely result in an outflow of resources.