Historical Cost Is the Basis Advocated for Recording the Acquisition

question 45

Multiple Choice

Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except

• A)at the date of acquisition, cost reflects fair market value.
• B)property, plant, and equipment items are always acquired at their original historical cost.
• C)historical cost involves actual trans?actions and, as such, is the most reliable basis.
• D)gains and losses should not be anticipated but should be recognized when the asset is sold.

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Definitions:

Collection Time

The average period it takes for a business to receive payments owed by its customers for goods or services sold on credit.

Money Market Securities

Short-term financial instruments that are typically liquid and considered safe, such as Treasury bills and certificates of deposit.

Average Daily Float

The average amount of un-cleared or in-process checks and electronic payments that are recorded in a company’s accounting system at any given time.

Collection Delay

The time it takes for a business to receive payment after issuing an invoice or credit sale, impacting cash flow.