Question

Exercise 9-1 Classifying liabilities LO C1 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 Nif 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)  - L

Long term because period of payment is over a year.

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

Current because period of payment is under a year.

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

Long term because it will mature after a period of a year.

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

Current because it deals with payment for the year.

5. Notes payable (due in 120 days).  - C

Current as it matures in less than a year.

6. FUTA taxes payable  - C

Taxes are for a single period making them current.

7. Accounts receivable  - N

This is an asset not a liability

8. Sales taxes payable.  - C

As this is this for the year, it is current.

9. Salaries payable.  - C

For the period so they are a current liability.

10. Wages payable - C

Concern one period so are a current liability.