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

Which of the following best describes the tax benefit and risk associated with a home equity loan?

Interest on a home equity loan is never tax-deductible, and the only risk is paying a higher interest rate.

Interest on a home equity loan may be tax-deductible if the loan is used to buy, build, or substantially improve the home, but there is a risk of losing the home if the loan is not repaid.

Interest on a home equity loan is always tax-deductible regardless of how the funds are used, and there is no risk to the home if the loan is not repaid.

There are no tax benefits to a home equity loan, but the risk is limited to a negative impact on credit score.

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Verified step by step guidance

Step 1: Understand the concept of a home equity loan. A home equity loan allows homeowners to borrow against the equity they have built in their property. The loan is secured by the home itself, meaning the home serves as collateral.

Step 2: Analyze the tax benefit aspect. Interest on a home equity loan may be tax-deductible, but only if the loan is used for specific purposes such as buying, building, or substantially improving the home. This is in accordance with IRS guidelines.

Step 3: Evaluate the risk associated with a home equity loan. Since the loan is secured by the home, failure to repay the loan could result in the lender foreclosing on the property, meaning the homeowner risks losing their home.

Step 4: Compare the options provided in the question. Eliminate incorrect statements, such as 'Interest is always tax-deductible regardless of use' or 'There is no risk to the home if the loan is not repaid,' as these are factually inaccurate.

Step 5: Select the correct answer based on the analysis. The correct description should align with the tax-deductibility condition (use of funds for home-related purposes) and the risk of losing the home if the loan is not repaid.