Which of the following is characteristic of liabilities, rather than of equity? (More than one answer may be correct.)
A) The obligation matures.
B) Interest paid to the provider of the capital is deductible in the determination of taxable income.
C) The capital providers' claims are residual in the event of liquidation of the business.
D) The capital providers normally have the right to exercise control over business operations.

Question

Quizplus · Accepted Answer

Liabilities represent obligations that must be fulfilled by the company in the future, typically with the payment of cash or other assets, whereas equity represents ownership in the company. The fact that the obligation represented by the liability matures is characteristic of liabilities, as it indicates that the company has a specific timeframe within which the obligation must be fulfilled. The other options are more closely associated with equity: interest paid to equity holders is generally not deductible for tax purposes, equity holders' claims are typically residual in the sense that they come after all liabilities have been fulfilled, and equity holders may have the right to exercise control over business operations.

Which of the Following Is Characteristic of Liabilities, Rather Than