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

17 days 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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Sue

20 days 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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1 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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Aliza

26 days 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

2 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

2 months ago

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

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