Multiple Choice
Which of the following is an example of a financial obligation best satisfied with long-term debt?
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9. Current Liabilities
Types of Liabilities
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Which of the following purchased assets would NOT be capitalized as a liability on the balance sheet?
A
A company vehicle purchased with a loan
B
Office supplies expected to be used within one month
C
Land purchased for future expansion
D
Machinery acquired through a finance lease
Verified step by step guidance1
Understand the concept of capitalization: Capitalization involves recording an expenditure as an asset on the balance sheet rather than an expense on the income statement. Assets are capitalized when they provide future economic benefits.
Review the nature of each asset mentioned in the problem: Determine whether the asset provides long-term benefits or is consumed quickly. Assets providing long-term benefits are typically capitalized.
Analyze the office supplies expected to be used within one month: Office supplies are considered short-term consumables and are typically expensed immediately rather than capitalized, as they do not provide long-term economic benefits.
Compare the other assets: A company vehicle purchased with a loan, land purchased for future expansion, and machinery acquired through a finance lease are all assets that provide long-term benefits and are therefore capitalized on the balance sheet.
Conclude that office supplies expected to be used within one month would NOT be capitalized as a liability on the balance sheet, as they are expensed immediately due to their short-term nature.
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