Future Business Leaders of America (FBLA) Agribusiness Practice Test

Which of the following would be considered a long-term liability?

1. Accounts payable

2. Mortgage payments

3. Inventory costs

4. Utility bills

The correct answer is: Mortgage payments

A long-term liability is a financial obligation that is due for payment over a period extending beyond one year. In this context, mortgage payments embody a long-term liability because they represent a loan taken out to purchase property, which is typically paid back over many years, often ranging from 15 to 30 years. This characteristic of having a maturity period that exceeds one year clearly qualifies mortgage payments as a long-term liability. In contrast, accounts payable, inventory costs, and utility bills are considered short-term liabilities or current items. Accounts payable consist of amounts a business owes to suppliers for purchases made on credit, which are usually paid off within a short time frame, typically within a year. Inventory costs pertain to the value of goods a company holds for sale, which is more of an asset than a liability. Utility bills are obligations that companies need to settle promptly, usually on a monthly basis, thus classifying them as current liabilities due within a short period as well. Therefore, mortgage payments stand out as the clear example of a long-term liability among the options provided.