Question

The following items appear on the balance sheet of a company with a two-month 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,

1.____________Notes payable (due in 13 to 24 months).
2.____________Notes payable (due in 6 to 12 months).
3.____________Notes payable (mature in five years).
4.____________Current portion of ling-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

Current liability refers to a liability which is payable within the duration of one year. On the other hand, long term liability refers to a liability which is payable after the duration of one year.

The classification of each item are as follows:

(1) L - It is payable for more than one year.

(2) C - It is payable within the duration of 12 months.

(3) L - It is mature in five years.

(4) C - It is current liability.

(5) C - Due for less than 365 days.

(6) C - It is a part of current liability

(7) N - It is a part of current assets.

(8) C - Payable within one year

(9) C - Salary is payable for less than one year.

(10) C - Wages is also payable for less than one year.