To Be Consistent with the Historical Cost Principle, Overhead Costs

question 46

Multiple Choice

To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be

• A) allocated on the basis of lost production.
• B) eliminated completely from the cost of the asset.
• C) allocated on an opportunity cost basis.
• D) allocated on a pro rata basis between the asset and normal operations.

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Definitions:

Gain Or Loss

The financial result that occurs when the selling price of an asset differs from its carrying amount at the time of sale or disposal.

Sinking Fund Bond

A type of bond that includes a fund set aside by the issuer to repay the bond at maturity, ensuring the bond's eventual payoff.

Specific Assets

Specific assets are identifiable and tangible assets like machinery, land, or buildings that a company owns and utilizes in its operations.

Board Of Directors

A group of individuals elected by the shareholders of a corporation to oversee and make decisions on behalf of the corporation.