Multiple Choice
Which of the following is an example of a long-term liability?
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9. Current Liabilities
Types of Liabilities
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Amala's balance sheet shows the following: Accounts Payable: $5,000; Notes Payable (due in 2 years): $10,000; Accrued Expenses: $2,000. What is the total of Amala’s liabilities?
A
$17,000
B
$10,000
C
$15,000
D
$12,000
Verified step by step guidance1
Step 1: Understand the concept of liabilities. Liabilities are obligations that a company owes to external parties, and they are typically classified into current liabilities (due within one year) and long-term liabilities (due after one year).
Step 2: Identify the liabilities listed in the problem. The balance sheet includes Accounts Payable ($5,000), Notes Payable ($10,000, due in 2 years), and Accrued Expenses ($2,000).
Step 3: Determine whether each liability is current or long-term. Accounts Payable and Accrued Expenses are current liabilities because they are typically due within one year. Notes Payable is a long-term liability because it is due in 2 years.
Step 4: Add the amounts of all liabilities together to calculate the total liabilities. Use the formula: Total Liabilities = Accounts Payable + Notes Payable + Accrued Expenses.
Step 5: Substitute the values into the formula: Total Liabilities = $5,000 + $10,000 + $2,000. This will give you the total liabilities for Amala.
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