Question

The following items appear on the balance sheet of a company with a two-month operating cycle. Identify

the proper classification of each item is as follows: Cif it is a current liability, Lif it is a long-term liability,

or Nif it is not a liability.

1. Notes payable (due in 13 to 24 months)

2. Notes payable (due in 6 to 12 months)

3. Notes payable (mature in five years)

4. Current portion of long-term debt

5. Notes payable (due in 120 days)

6. FUTA taxes payable

7. Accounts receivable

8. Sales taxes payable

9. Salaries payable

10. Wages payable

Short answer

1.	L
2.	C
3.	L
4.	C
5.	C
6.	C
7.	N
8.	C
9.	C
10.	C

Step-by-step solution

Meaning of Current Liabilities

The current liabilities refer to those that become due within 12 months or in a period of an operating cycle.

Classification of the liabilities

1. Notes payable due in 13 to 24 months is classified as a long-term liability as it has to be paid after one year.
2. Notes payable due in 6 to 12 months is classified as a current liability as these notes payable are due within 12 months.
3. Notes mature in the five years are classified as a long-term liability as their maturity time has exceeded 12 months.
4. The current portion of the long-term debt is classified as the current liability as it already mentions the current portion.
5. Notes payable due in 120days are classified as a current liability as 120 days is two months and comes within 12 months.
6. FUTA taxes are classified as a current liability as the tax liabilities are to be paid within a year.
7. Accounts receivable are not a liability as it is a current asset of the business. The business will receive money in the future against the accounts receivable.
8. The sales taxes payable is classified as current liabilities as tax liabilities are to be paid within a year.
9. The Salaries Payable is classified as current liabilities as salary is to be paid to the employees within a year.
10. The wages payable are classified as a current liability as wages are to be paid to the employees within a year.