In Schweser book 2 page 280 question 6 through 11, they mention the company is expected to incur $5,000 in expenses relating to a workmen’s compensation claim. In the adjustment to the BS they increase Long Term liabilities by $5,000 and reduce equity by $5,000. My question is, why isn’t a current liability rather than a long-term liabiliity? Is it because they don’t state that they expect to pay it out in the next 12 months? Thanks
Yes I remember this question and I think your reasoning is the best way to make sense of it.