Eldon Leases Tools and Other Equipment on a Long- Term

question 1

Multiple Choice

Eldon leases tools and other equipment on a long- term basis to construction companies. He needs to buy a new forklift truck to lease in his business. Which of the following describes ways that Eldon could acquire the forklift truck?

• A) Eldon could buy the forklift truck for cash from the manufacturer.
• B) Eldon could lease the forklift truck from the manufacturer with an option to purchase it for fair market value at the end of the lease.
• C) Eldon could borrow money from a bank, use the money to buy the forklift truck from the manufacturer, and give the bank a security interest in the forklift truck.
• D) Eldon could buy the forklift truck on credit from the manufacturer, with the manufacturer retaining title until payment has been made in full.
• E) All of the above.

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Definitions:

Credit Entries

Accounting entries that increase liability or equity accounts or decrease asset or expense accounts.

Cash Account

An account recording all transactions involving cash inflows and outflows.

Owner's Capital

The amount of money and other assets owned by the owner of a company that has been invested in the business.

Net Loss

Occurs when a company's total expenses exceed its total revenues during a specific period, resulting in negative earnings.