Question

Zach bought a car for $20,000. He

paid a $5,000 down payment and
will pay $450 per month for 5
years. What type of liability is this
for Zach?
A. liquid
B. long-term
C. short term
D. budget

Answer 1

The correct answer is B. Long-term.

Explanation:

Since Zach has bought a car for $ 20,000 paying a down payment of $ 5,000 and monthly payments of $ 450 per month for 5 years, he will be paying a total of $ 32,000 for that car (5,000 + 450 x 12 x 5). Thus, the responsibility that Zach has incurred forces him to maintain his monthly payment obligation for 5 years, thus becoming a long term liability.