Which of the Following Correctly Describes the Effects of Initially

question 83

Multiple Choice

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

• A)Total assets do not change.
• B)Net income decreases.
• C)Liabilities are decreased.
• D)Stockholders' equity increases.

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Definitions:

Average Fixed Cost

The fixed costs (costs that do not vary with output) divided by the quantity of output produced.

Marginal Cost

The expense addition due to the manufacture of one more product or service unit.

Average Variable Cost

The total variable costs (e.g., materials, labor) divided by the quantity of output produced, representing the variable cost per unit.

Marginal Cost

The hike in cost associated with the creation of an extra unit of a good or service.