Question

• Explain the difference between a current and a long-term liability.
• Explain the three important questions concerning the uncertainty of liabilities.
• State the combined amount (in percent) of the employee and employer FICA-Social Security tax rate. (Assume wages do not exceed $118,500 per year.)
• What is the 2016 Medicare tax rate? This rate is applied to what maximum level of salary and wages.
• Which payroll taxes are the employee’s responsibility and which are the employer’s responsibility?

Answer 1

1. A current liability is a liability that has to be paid and settled within the next twelve months or within the next operating cycle of a company (whichever is longer) . On the other hand a long term liability is a liability that will be settled after a period of twelve months or after the next operating cycle of a company (whichever is longer).

Examples of current liabilities are accounts payable, notes payable, wages and salaries due etc.

Examples of long term liabilities are bonds payable, pension obligations, deferred taxes etc.