BB Had Previously Purchased Inventory from L Wong for $15

question 38

Multiple Choice

BB had previously purchased inventory from L Wong for $15 000. On 1 October BB gave Wong a 60-day, bill of exchange to cover the amount of the account payable plus interest at 9% p.a. What is the correct accounting entry in BB's books to record the issue of the bill?

• A) Debit accounts payable $15 000; debit unexpired interest $222; credit bills payable $15 222
• B) Debit accounts payable $15 000; credit bills payable $15 000
• C) Debit bills payable $15 222; credit accounts payable $15 222
• D) Debit bills payable $15 000; debit unexpired interest $222; credit accounts payable $15 222

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Definitions:

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee, recognizing their share of the profits and losses.

Indefinite Useful Life

An intangible asset with an expected life that extends beyond the foreseeable future, not requiring amortization but subject to annual impairment tests.

Acquisition Differential

The difference between the purchase price of an acquired entity and the fair value of its identifiable net assets.

Goodwill Impairment

The decrease in the value of a company’s goodwill, which occurs when the market value of the entity is less than its recorded value on the balance sheet.