Question

The following items appear on the balance sheet of a company with a one-year operating cycle. Identify the proper classification of each item as follows: C if it is a current liability, L if it is a long-term liability, or N if it is not a liability.
Item Classification
1. Notes payable (due in 13 to 24 months)
2. Notes payable (due in 6 to 11 months).
3. Notes payable (mature in five years).
4. Current portion of long-term debt.
5. Notes payable (due in 120 days).
6. FUTA taxes payable.
7. Accounts receivable.
8. Sales taxes payable.
9. Salaries payable.
10. Wages payable.

Answer 1

Answer:

1. Notes payable (due in 13 to 24 months) - Long term Liability

This note will be owed for a period of more than 1 year. When this happens the note is said to be Long term.

2. Notes payable (due in 6 to 11 months). - Current Liability

As this note is due in a period less than a year, it is considered a current Liability.

3. Notes payable (mature in five years). - Long term Liability

This is a note that matures in a period more than a year making it a Long term Liability.

4. Current portion of long-term debt. Current Liability.

The current portion is due to be paid within the period so it is short term and hence a Current Liability.

5. Notes payable (due in 120 days). Current Liability.

Due in less than a year.

6. FUTA taxes payable. Current Liability

Taxes are generally considered a short term Liability until they are paid.

7. Accounts receivable. N (Not a Liability)

Accounts Receivable are Assets.

8. Sales taxes payable. Current Liability.

Taxes are generally considered a short term Liability until they are paid.

9. Salaries payable. Current Liability.

These salaries are owed for the period but have not been paid making them Current.

10. Wages payable. Current Liability.

Same as above. They are owed for the period but not yet paid.