Canadian Securities Course (CSC) Level 1 Practice Exam

What is considered long-term debt?

1. Debt that is due within a year.

2. Debt that is repaid in a lump sum at any time.

3. Debt that is due in annual installments over years.

4. Debt that has no specified repayment date.

The correct answer is: Debt that is due in annual installments over years.

Long-term debt is typically characterized by the time frame in which it is due for repayment. This type of debt is generally repaid over a period longer than one year, often in regular installments. The choice that describes debt due in annual installments over multiple years accurately reflects the nature of long-term debt. This format allows borrowers to spread payments over time, making it manageable to handle larger balances. In contrast, debt due within a year is classified as short-term debt. Debt that is repaid in a lump sum at any time may not fit the long-term classification if it can be settled conveniently in the near term. Debt without a specified repayment date can be often regarded as perpetual or indefinite, which does not typically align with long-term debt categorized by defined repayment schedules. Therefore, the description of long-term debt aligns most closely with the option regarding annual installments over several years.