CFA Institute Exam CFA-Level-I Topic 3 Question 10 Discussion

Actual exam question for CFA Institute's CFA-Level-I exam

Question #: 10
Topic #: 3

A firm has entered into a long-term purchase obligation. This will allow the firm to obtain raw materials for operations at a known price over the next 6 years. This obligation must be reflected on the balance sheet as:

Aa current liability until the first purchase occurs.

Ba footnote disclosure.

Cnone of these answers.

Da long-term liability.

Show Suggested Answer

Suggested Answer: C

by Iluminada at Dec 07, 2024, 04:25 AM

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Rhea

1 months ago

Wait, does this mean the firm is 'locked in' to these raw materials? I hope they don't end up with a 'raw' deal!

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Shonda

15 days ago

Yes, the firm is locked in to purchasing the raw materials at a known price for the next 6 years.

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Sue

1 months ago

Liability all the way, baby! The firm's gotta pay for those raw materials, no matter what. Might as well make it official on the balance sheet.

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Yuki

2 days ago

Yeah, it's important to show that obligation on the balance sheet.

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Yuette

3 days ago

It's definitely a liability, no doubt about it.

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Magnolia

2 months ago

Ooh, I bet this is a tricky one. Is it a contingent liability or something else? I need to think this through.

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Kathrine

9 days ago

I think it's classified as a non-current liability because it's not due within the next year.

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Kristeen

12 days ago

That makes sense. It's important to accurately reflect obligations on the balance sheet.

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Velda

16 days ago

Yes, it's considered a long-term debt since it's a commitment to pay in the future.

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Alpha

23 days ago

Yes, it's considered a long-term debt since it's a commitment to pay in the future.

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Sharita

25 days ago

It should be recorded as a long-term liability on the balance sheet.

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Dana

1 months ago

It should be recorded as a long-term liability on the balance sheet.

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Cherri

2 months ago

Definitely a liability! Can't hide that obligation from the accountants, it's gotta be on the books.

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Diane

2 months ago

Hmm, this sounds like a long-term contract. I'd say it should be reported as a liability on the balance sheet, right?

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Gilma

6 hours ago

Agreed, transparency in reporting is key for investors and stakeholders.

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Reynalda

1 days ago

Exactly, it helps provide a clear picture of the firm's financial health and obligations.

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Sabra

15 days ago

That makes sense. It's important to accurately reflect long-term obligations in financial statements.

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Aliza

1 months ago

Yes, you're correct. It should be reported as a long-term liability on the balance sheet.

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Lovetta

2 months ago

But what if the purchase obligation is cancelable? Should it still be classified as a liability?

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Wei

3 months ago

I agree with Keneth. It makes sense to show it as a long-term liability since it's a commitment that will last for several years.

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Keneth

3 months ago

I think the obligation should be recorded as a liability on the balance sheet.

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