Question

Question: Which of the following items are normally classified as current liabilities for a company that has a 15-month operating cycle?

1. Portion of long-term note due in 15 months
2. Note payable maturing in 2 years
3. Note payable due in 18 months
4. Note payable due in 11 months
5. FICA taxes payable
6. Salaries payable

Short answer

The Current liabilities are a portion of long-term notes due in 15 months; Notes payable due to 11 months; FICA taxes payable, and; Salaries payable.

The non-current liabilities are note payable due in 2 years and note payable due in 18 months.

Step-by-step solution

Step-by-step solution Step 1: Current liabilities

Current liabilities are the obligations due to be paid or settled within an accounting year or a company’s operating cycle, whichever is longer.

The following items are current liabilities

1. The portion of long-term notes due in 15 months: The business's operating cycle is 15 months, thus, it is considered a current liability.
2. Note payable due in 11 months: Notes payable due in 11 months, is less than the accounting year or the business's operating cycle.
3. FICA taxes payable: FICA taxes payable is a current liability as it is paid within an operating cycle.
4. Salaries payable: Salary payable is a current liability as it is paid annually.

The following items are non-current liabilities

1. Note payable due in 2 years: It is a non-current liability because the due is to be paid in 2 years, which is greater than the business's operating cycle.
2. Note payable due in 18 months: It is a non-current liability because the due amount is to be paid in 18 months, which is greater than the business's operating cycle.