this exercise tests your ability to distinguish between current and long term liabil 610351

This exercise tests your ability to distinguish between current and long-term liabilities.

1. Obligation to supplier for merchandise purchased on credit. (Terms 2/10, n/30).

2. Note payable to bank maturing 90 days after balance sheet date.

3. Note payable due January 1, 2017.

4. Property taxes payable.

5. Interest payable on note payable.

6. Sales taxes payable.

7. Portion of mortgage obligation due in years 2016 through 2020.

8. Revenue received in advance, to be earned over the next six months.

9. Wages and salaries payable.

10. Rent payable.

11. Short-term notes payable.

12. Pension obligations maturing in ten years.

13. Installment loan payments due three months after the balance sheet date.

14. Installment loan payments due more than one year after the balance sheet date.

15. Portion of mortgage obligation due within a year after the December 31, 2014 balance sheet date.

16. Note payable maturing March 1, 2015.

Instructions:

Indicate whether each of the above items would be reported as a current liability (C) or a long-term liability (LT) on a balance sheet prepared at December 31, 2014.

Approach: Review the definition of a current liability. Analyze each situation above and determine if the liability will fall due within a year (or operating cycle) of the balance sheet date and whether it will require the use of current assets or the incurrence of another current liability to liquidate. If so, it is current; if not, it is long-term.