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

Under the topic of 'Types of Liabilities,' how are pre-death distributions from a modified endowment contract (MEC) generally classified for financial accounting purposes?

As a long-term liability, since the contract extends beyond one year.

As income to the policyholder, with any taxable portion recognized as a liability for income taxes payable.

As a current liability, since the distribution is expected to be settled within one year.

As a contingent liability, because the obligation depends on a future event.

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Verified step by step guidance

Understand the concept of liabilities in financial accounting. Liabilities are obligations that a company or individual owes to others, classified as current, long-term, or contingent based on their nature and timing.

Review the definition of a modified endowment contract (MEC). MECs are life insurance contracts that fail to meet certain IRS requirements, and distributions from them may have specific tax implications.

Analyze the classification options provided in the problem: long-term liability, current liability, contingent liability, and income to the policyholder with taxable portions recognized as liabilities for income taxes payable.

Determine the nature of pre-death distributions from a MEC. These distributions are typically taxable and are recognized as income to the policyholder. Any taxable portion creates an obligation for income taxes payable, which is classified as a liability.

Conclude that the correct classification for pre-death distributions from a MEC is 'income to the policyholder, with any taxable portion recognized as a liability for income taxes payable,' as this aligns with financial accounting principles and tax regulations.