CFA Practice Question

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CFA Practice Question

Which of the following are current liabilities?

A. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months
B. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months
C. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue
Correct Answer: B

Current liabilities are due within 12 months of the balance sheet date.

User Contributed Comments 12

User Comment
kalps Why is the last one also not true?
quincy It is not true. Short-term liabilities refinanced or paid from non-current assets are classified as Long-term liability
db28luke But it doesn't mention anything about refinancing?
cbb1 Since there is no doubt about the refundability, it is properly classified as LT.
overworked Why not A?
ayep because A is linked to the sinking fund, which is a LT liability
jack1jack If a bond is due within a year but there are non-current resources allocated to repay it, the bond is not a current liability. In A there are other resources (sinking fund) to repay the bond. Under B, the appropriation of retained earnings basically mean the company has set aside some current asset to deal with the maturing bond. Therefore the maturing bond must be classified as current liability.
DonAnd thanks jack1jack
poomie83 Hang on jack are you saying C is current liab?
cslau83 actually all is correct. Do not know why the answer is only B
cslau83 meaning all are due within 12 months of the balance sheet, regardless of whether there is appropriate sinking fund or appropriation etc etc.
johntan1979 A and C are definitely wrong because there are no matching current assets, just like what jack1jack said.
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