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Accounting: Is a 25-Year Mortgage Current or Non-Current Liability?
Accounting
High School Grade 11/12 (or College Introductory Accounting)
Question Content
Is a 25-year mortgage current or non-current?
Correct Answer
Non-Current Liability (with the 12-month repayment portion classified as Current Liability)
Detailed Solution Steps
1
Step 1: Recall non-current liability definition: Obligations due beyond 12 months. A 25-year mortgage has a term far longer than 12 months, so the majority is non-current.
2
Step 2: Note the current portion exception: The portion of the mortgage due to be repaid within the next 12 months is classified as a Current Liability, while the remaining balance is Non-Current.
Knowledge Points Involved
1
Long-Term Debt Classification
Long-term debt like a 25-year mortgage is primarily a non-current liability, as the full obligation is not due for 25 years. However, the portion due within the next 12 months is reclassified as a current liability to show short-term repayment obligations.
2
Current Portion of Long-Term Debt
This is a sub-category of current liabilities, representing the part of a long-term liability that must be paid within the next 12 months. It ensures financial statements accurately reflect short-term cash outflows for debt repayment.
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