Your Company Bought a 30-Second Advertisement That Aired During the Super

question 82

Multiple Choice

Your company bought a 30-second advertisement that aired during the Super Bowl at a cost of $1.2 million.It is legally obligated to pay for the ad but has not yet done so.How does the purchase and use of the ad time affect your company's balance sheet?

• A)It increases both assets and liabilities by $1.2 million.
• B)It increases assets and decreases stockholders' equity by $1.2 million each.
• C)It does not affect the balance sheet.
• D)It increases liabilities and decreases stockholders' equity by $1.2 million each.

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Definitions:

LIFO

Last In, First Out, an inventory valuation method where the most recently produced items are recorded as sold first.

Absorption Costing

A method of accounting in which all the costs associated with the production of a product are absorbed by that product. This includes direct costs like materials and labor, as well as fixed and variable overhead.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.

Net Operating Income

The income generated from normal business operations, calculated by deducting operating expenses from gross income.