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 1. if it is not a liability. Machinery (expected life of 4 years). L 2. Notes payable (mature in five years). L 3. Accounts payable (due in 30 days). 4. Patents (to expire after 5 years). 5. Notes payable (due in 13 to 24 months). L 6. Prepaid Insurance (6 months of coverage). 7. Current portion of long-term debt. 8. Unearned revenues (to be earned over next 3 months). 9. FUTA taxes payable. C 10. Pension liability (to be paid to employees retiring in 2 to 5 years).

Answer 1

Answer:

The answer is:

1. N

2. L

3. C

4. N

5. L

6. N

7. C

8. C

9. C

10. L

Explanation:

Current liability is the type of liability whose obligations are due within a year.

Long-term liability is the type of liability whose obligations are due in more than a year's time i.e it has a lifespan of more than a year.

1. Machinery (expected life of 4 years) - N

2. Notes payable (mature in five years). - L

3. Accounts payable (due in 30 days). - C

4. Patents (to expire after 5 years) - N

5. Notes payable (due in 13 to 24 months) - L

6. Prepaid Insurance (6 months of coverage). - N

7. Current portion of long-term debt - C

8. Unearned revenues (to be earned over next 3 months) - C

9. FUTA taxes payable - C

10. Pension liability (to be paid to employees retiring in 2 to 5 years) - L