Current Liability

Which of the following is classified as a current liability rather than a deferred (long-term) liability?

1. A.Long-term debtWrong. Long-term debt is, by definition, a deferred/noncurrent liability.
2. B.Short-term debt maturing within one yearCorrect. Debt due within one year is classified as a current liability.
3. C.Deferred tax liabilitiesWrong. Deferred tax liabilities are noncurrent by definition.
4. D.Additional paid-in capitalWrong. Additional paid-in capital is part of stockholders' equity, not a liability at all.

Why: Short-term debt maturing within one year is a current liability. Long-term debt and deferred tax liabilities are noncurrent, and additional paid-in capital is not a liability at all — it is part of equity.

Meridian Tools' warranty reserve is expected to require cash payments of $8 million within the next 12 months and an additional $4 million in months 13 through 18. How should the $12 million reserve appear on the balance sheet?

1. A.The entire $12 million as a current liabilityWrong. Only the $8 million due within 12 months is current.
2. B.The entire $12 million as a contra-assetWrong. A warranty reserve is a liability (an obligation to pay claims), not a contra-asset.
3. C.The entire $12 million as a long-term liabilityWrong. The $8 million due within 12 months must be classified as current.
4. D.$8 million as a current liability and $4 million as a long-term liabilityCorrect. The reserve splits at the 12-month mark per standard balance sheet classification.

Why: Balance sheet classification splits at the 12-month line: the $8 million due within the next year is a current liability, and the remaining $4 million is a long-term liability. Lumping the whole reserve into one bucket misstates near-term obligations.