Multiple Choice
Which of the following types of liabilities normally has an associated contra account?
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9. Current Liabilities
Types of Liabilities
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Which of the following is an example of a current liability?
A
Bonds payable (due in 10 years)
B
Preferred stock
C
Accounts payable
D
Mortgage payable (due in 15 years)
Verified step by step guidance1
Understand the definition of a current liability: A current liability is a financial obligation that a company expects to settle within one year or within its operating cycle, whichever is longer.
Analyze each option provided in the problem: Bonds payable (due in 10 years), Preferred stock, Accounts payable, and Mortgage payable (due in 15 years).
Evaluate the time frame for each liability: Bonds payable and Mortgage payable are long-term liabilities because they are due in more than one year. Preferred stock is not a liability; it is equity.
Identify Accounts payable: Accounts payable represents amounts owed to suppliers for goods or services received, typically due within a short period (e.g., 30 to 90 days), making it a current liability.
Conclude that Accounts payable is the correct example of a current liability based on its short-term nature and alignment with the definition of current liabilities.
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