Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

6. What is a potential danger of taking a variable rate loan?

The loan must be paid off in a single lump sum at maturity.

The loan cannot be repaid early without penalty.

The interest rate is fixed and never changes.

The interest rate may increase over time, leading to higher payments.

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Verified step by step guidance

Understand the concept of a variable rate loan: A variable rate loan is a type of loan where the interest rate can change over time based on market conditions or an index rate, such as the prime rate or LIBOR.

Recognize the potential danger: The primary risk associated with a variable rate loan is that the interest rate may increase over time, which would result in higher monthly payments for the borrower.

Compare with fixed-rate loans: Unlike variable rate loans, fixed-rate loans have a constant interest rate throughout the loan term, providing predictability in payments. This helps highlight the risk of variability in interest rates for variable loans.

Consider the financial impact: If the interest rate increases significantly, it can lead to financial strain for the borrower, as they may struggle to meet the higher payment obligations.

Evaluate the importance of understanding loan terms: Borrowers should carefully review the terms of a variable rate loan, including how the interest rate is determined and the frequency of rate adjustments, to assess whether they can manage potential increases in payments.