A firm classifies mortgages, notes, bonds, and leases which were used to acquire its long-term assets that fall due after the operating cycle, (usually greater than one year) as
A)a current liabilities.
B)a long-term asset.
C)a long-term liabilities.
D)part of shareholders' equity.
E)contingent liabilities.

Question

Quizplus · Accepted Answer

Mortgages, notes, bonds, and leases used to acquire long-term assets that fall due after the operating cycle are considered long-term liabilities. This is because they represent amounts owed by the firm that are not due within a year, which is the definition of a long-term liability. Current liabilities are amounts that are due within one year, while long-term assets represent assets that will benefit the firm for a period greater than one year. Thus, neither of these options is applicable. Shareholders' equity represents the residual value of the assets after all liabilities are deducted and is not related to these types of financing arrangements. Contingent liabilities are potential obligations that may arise in the future, depending on the occurrence of certain events, and are not related to these types of financing arrangements.

A Firm Classifies Mortgages, Notes, Bonds, and Leases Which Were