Question

1. Listed below are several terms and phrases associated with current liabilities. Pair each item in the first column (by number) with the item in the second column that is most appropriately associated with it.

Long-term debt maturing within one year. 2. Classifying liabilities as either current or long-term helps investors and creditors assess this.

FICA and FUTA.

Informal agreement that permits a company to borrow up to a prearranged limit.

Amount of note payable x annual interest rate x fraction of the year.

Current portion of long-term debt ____

Payroll taxes ____

Line of credit ____

The riskiness of a business's obligations ____

Interest on debt ____

Answer 1

1. Current portion of long-term debt	Long-term debt maturing within one year. The current portion of long-term debt (CPLTD) is the amount of unpaid principal from long-term debt that has accrued in a company’s normal operating cycle (typically less than 12 months). It is considered a current liability because it has to be paid within that period.
2. Payroll taxes	FICA and FUTA. Both stand for federal laws that fund key government programs. FICA, or the “Federal Insurance Contributions Act” funds Social Security and Medicare. FUTA, or the “Federal Unemployment Tax Act,” funds unemployment benefits.
3. Line of credit	Informal agreement that permits a company to borrow up to a prearranged limit. A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork. The line of credit works like a note payable except the company is able to borrow without having to go through a formal loan approval process each time it borrows money.
4. The riskiness of a business's obligations	Classifying liabilities as either current or long-term helps investors and creditors assess this. The investors and creditors are making decision about companies riskiness of a business obligation from the current ratio, debt to asset ratio and liquidity ratios and for calculating these ratios they need to know that particular liabilities are current or long term in nature.
5. Interest on debt	Amount of note payable x annual interest rate x fraction of the year. This is the formula for calculating the Interest on the debt taken by the company.