Final answer:
Bonds that are due to be repaid within the next twelve months are classified as a current liability. The correct answer to the student's question is 'Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months' as these will need to be repaid within the year without any conditions that extend their classification.
Step-by-step explanation:
The student has asked which of the following items is a current liability:
- Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months.
- Bonds due in three years.
- Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
- Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.
The definition of a current liability is an obligation that is expected to be settled within one year or within the normal operating cycle of the company if longer. Therefore, a bond that requires repayment within the next twelve months is classified as a current liability. Given the options, the correct answer is the bond due in this period. Options A and C might appear correct; however, since the sinking fund in option A makes it effectively reclassified as a long-term investment, it is not considered a current liability. Since there is no specified doubt about the marketability of the refunding issue in option D, it also is not a current liability.
The answer is, therefore: Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. These are considered a current liability because they are due within the year and there is no mention of a provision or action that would extend the liability beyond this period.