Multiple Choice
Which of the following best describes an uncollateralized loan?
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9. Current Liabilities
Types of Liabilities
Multiple Choice
Under the classification of liabilities, mortgages are best described as which type of liability?
A
Long-term liabilities
B
Accrued expenses
C
Contingent liabilities
D
Current liabilities
Verified step by step guidance1
Understand the definition of a mortgage: A mortgage is a loan secured by real property, typically used to purchase real estate, and is repaid over a long period of time.
Review the classification of liabilities: Liabilities are categorized into current liabilities (due within one year) and long-term liabilities (due after one year).
Analyze the nature of a mortgage: Since mortgages are typically repaid over several years, they are not considered current liabilities unless the portion due within the next year is specifically identified.
Eliminate incorrect options: Accrued expenses are short-term obligations, contingent liabilities depend on uncertain future events, and current liabilities are due within one year. These do not align with the nature of a mortgage.
Conclude that mortgages are classified as long-term liabilities because they are obligations that extend beyond one year, except for the portion due within the next year, which may be classified as a current liability.
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