Question

Geoff rents an apartment with a monthly rent of $850. He owns the furniture in the apartment, which is worth $3,500, and he owns his car, which is worth $6,000. Geoff has a balance of $1,225 on his credit card and has $3,560 in a savings account.

Which is one of Geoff’s liabilities?
a. the car

b. the furniture

c.the savings account

d.the credit card

Answer 1

Geoff's liability is the credit card

Answer 2

The correct answer is D. The credit card

Explanation:

In finances, the word "liability" refers to a debt or amount of money someone must pay or owes, this means the liabilities are the opposite to assets which are the possessions that belong to someone. Additionally, liabilities are the result of past events or transactions including the money that has been borrow from a bank, person or other entity and that should be paid in a certain time which represents an economic obligation of the person who borrowed the money. In the case presented Geoff assets are the possession he has including his car, the money in the save count and the furniture; however, the balance of $1225 in the credit card can be classified as a liability as Geoff "borrowed" this money and now it is his obligation to pay back as he owes the money which is the main feature of a liabilities.