Utah Contractor Practice Exam

Which of the following best defines long-term liabilities?

1. Debt due within one year

2. Debt resulting from operational losses

3. Debt secured by personal guarantees

4. Debt due beyond one year

The correct answer is: Debt due beyond one year

Long-term liabilities are a financial term that refers to obligations or debts that a company is required to settle over a period extending beyond the current fiscal year. This is critical for assessing a company’s financial health and stability, as long-term liabilities can include various forms of debt, such as bonds payable, long-term loans, and lease obligations. Understanding this definition is essential for evaluating a business's financial situation since long-term liabilities indicate how much debt a company has that it will need to manage over an extended period. Companies typically manage these liabilities for growth and expansion initiatives. In contrast, other options describe different financial situations. For instance, debt due within one year pertains to short-term liabilities, which are covered by current assets. Debt from operational losses refers more to losses in income rather than obligations to pay. Debt secured by personal guarantees relates to a specific type of collateral or assurance but does not necessarily indicate the duration of the liability itself.