Activity 9 - Understanding Current Liabilities

Which of the following best defines current liabilities?

• Debts that are due to be paid within one year

• Assets that are expected to be used within one year

• Debts that are due to be paid after five years

• Investments held for more than one year

Which of the following is an example of a current liability?

• Accounts payable

• Land

• Equipment

• Goodwill

Why are current liabilities important for a business?

• They indicate the company’s short-term financial obligations

• They represent the company’s long-term investments

• They show the company’s total revenue

• They are not recorded on the balance sheet

Which of the following is NOT a current liability?

• Bank loan due in 10 years

• Unearned revenue

• Wages payable

• Short-term notes payable

How do current liabilities differ from long-term liabilities?

• Current liabilities are due within one year, while long-term liabilities are due after one year

• Current liabilities are not recorded on the balance sheet

• Long-term liabilities are always larger in amount

• Current liabilities are only for manufacturing companies

Which of the following would NOT be classified as a current liability?

• Mortgage payable (due in 15 years)

• Interest payable (due in 3 months)

• Income taxes payable

• Accrued expenses

What is the impact of high current liabilities on a company’s liquidity ratios?

• It decreases liquidity ratios

• It increases liquidity ratios

• It has no effect on liquidity ratios

• It only affects profitability ratios

Which financial statement would you look at to find a company’s current liabilities?

• Balance sheet

• Income statement

• Statement of cash flows

• Statement of retained earnings

Which of the following is a typical example of a current liability for most companies?

• Accounts payable

• Patents

• Buildings

• Deferred tax assets

If a company has high current liabilities compared to its current assets, what does this indicate?

• The company may have difficulty meeting its short-term obligations

• The company is highly profitable

• The company has no debt

• The company is investing in long-term assets