Cow-Calf Certification Practice Exam

What type of loan is a 30-year loan for pasture purchase classified as?

1. Current liability

2. Intermediate liability

3. Long term liability

4. Short term liability

The correct answer is: Long term liability

A 30-year loan for pasture purchase is classified as a long-term liability because it extends over a period exceeding one year. Long-term liabilities are obligations that are not expected to be settled within one year from the date of the financial statement. In the context of agricultural financing, such as purchasing pasture, the extended payback period indicates that the borrower has a long-term commitment to repay the debt, making it suitable for funding investments that will yield returns over a more extended period, such as land acquisition and development for cattle grazing. Current liabilities would only include obligations due within one year, while short-term liabilities are typically associated with borrowing that is to be repaid within a short time frame. Intermediate liabilities generally refer to obligations that fall between short and long-term but are typically for durations of one to five years. Since a 30-year loan clearly exceeds both of these durations, it fits the definition of a long-term liability.