1SE - Horngren'S Financial And Managerial Accounting

Question

Rios Raft Company had the following liabilities. 

a. Accounts Payable

b. Note Payable due in 3 years

c. Salaries Payable

d. Note Payable due in 6 months

e. Sales Tax Payable

f. Unearned Revenue due in 8 months

g. Income Tax Payable

 

Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).

Step-by-Step Solution

Answer

The note payable due in 3 years is the only long-term liability and the rest are current liabilities.

Step 1: Current Liability

A current liability is an obligation that is payable within one year or within the one accounting cycle. It is the liability relating to operating activity or working capital.

From the given list following are the current liabilities:

a) Accounts Payable

c) Salaries payable

d) Notes payable due in 6 months

e) Sales tax payable

f) Unearned revenue due in 8 months

g) Income tax payable

Step 2: Long-term liability

Long-term liability is the obligation that is payable for more than a year or more than one accounting cycle. This liability arises due to the financing activity and needs.

From the given list only (b) Notes payable due in 3 years in the long term liability.