Concept explainers
All of the following are reported as current liabilities except:
a. interest payable.
b. bonds payable due in 18 months.
c. salaries payable.
d. sales tax payable.
To identify: The correct option related to current liabilities.
Answer to Problem 1QC
Option (b)
Explanation of Solution
Current liabilities: Current liability is a kind of liability or the obligation of the business towards the creditors, in which the business is required to pay the creditors, within a period of one year or one operating cycle of the business, whichever is longer.
Examples of current liabilities: Accounts payable, Salaries and Wages payable, Interest payable, Income Tax payable.
Explanation for correct answer: Bonds payable that have a maturity period of more than 12 months is not reported as current liability; it is reported under long-term liability on the company’s balance sheet. Hence Option (b) is correct.
Explanation for incorrect answers:
- Option (a) is incorrect because interest payable is the obligation for the company that the company needs to pay to the banker within 12 months. Hence, it is reported under the current liabilities on the company’s balance sheet.
- Option (c) is incorrect because salaries payable is the obligation for the company that the company needs to pay to the employees within 12 months. Hence, it is reported under the current liabilities on the company’s balance sheet.
- Option (d) is incorrect because sales tax payable is the obligation for the company that the company needs to pay to the government within 12 months. Hence, it is reported under the current liabilities on the company’s balance sheet.
Hence, the correct answer option is (b).
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Chapter 8 Solutions
MyLab Accounting with Pearson eText -- Access Card -- for Financial Accounting
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- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College