Question

Ace company borrowed $10,000 from fair rates bank by signing a two-year note payable. ace's operating cycle is 14 months. this note would be considered a ____ on the balance sheet.

multiple choice
a. term assetlong
b. term equityshort
c. term liabilityshort
d. term equitylong
e. term liabilitylong
f. term asset

Answer 1

The note payable by Ace Company is considered a long-term liability on the balance sheet as it is due over a two-year period, which exceeds both the one-year threshold and the company's 14-month operating cycle. Therefore correct option is E

Step-by-step explanation:

The Ace company borrowed $10,000 from Fair Rates Bank by signing a two-year note payable. Considering that the payment duration exceeds the length of Ace's operating cycle of 14 months, this note would not be classified as a short-term liability. Instead, on the balance sheet, this note would be considered a long-term liability.

A long-term liability is a financial obligation that is due in more than one year's time or beyond the company's operating cycle, whichever is longer. In this case, because the note is payable over two years, it extends beyond both the one-year benchmark and Ace's 14-month operating cycle. Therefore, the correct answer is E. term liability long.