The following items represent liabilities on a firm's balance sheet:
a. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note
was executed.
b. An amount of money owed to a creditor on a note due April 30, 2013.
c. An amount of money owed to a creditor on a note due August 15, 2014.
d. An amount of money owed to employees for work performed during the last week in December.
e. An amount of money owed to a bank for the use of borrowed funds due on March 1, 2013.
f. An amount of money owed to a creditor as an annual installment payment on a ten-year
note.
g. An amount of money owed to the federal government based on the company's annual
income.
Required
1. For each item, state whether it should be classified as a current liability on the December 31,
2012, balance sheet. Assume that the operating cycle is shorter than one year. If the item
should not be classified as a current liability, indicate where on the balance sheet it should be
presented.
2. For each item identified as a current liability in part (1), state the account title that is normally used to report the item on the balance sheet.
3. Why would an investor or a creditor be interested in whether an item is a current or a longterm liability?