Brad Operates a Storage Business on the Accrual Method

question 73

Multiple Choice

Brad operates a storage business on the accrual method. On July 1, Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance cover the next 12 months. What is Brad's deduction for the rent and insurance?

• A)$48,000 for the rent and $18,000 for the insurance
• B)$24,000 for the rent and $18,000 for the insurance
• C)$24,000 for the rent and $9,000 for the insurance
• D)$48,000 for the rent and $9,000 for the insurance
• E)None of the choices are correct.

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Definitions:

Markup

The amount added to the cost price of goods to cover overhead and profit, expressed as a percentage of the cost.

Return On Investment

A financial metric used to evaluate the efficiency or profitability of an investment, calculated by dividing the gain from the investment by its cost.

Absorption Costing

An approach to product costing that compounds all expenses involved in manufacturing, such as direct materials, labor costs, and all types of overheads, into the product’s final cost.

Markup

The discrepancy between the selling price and the production cost of a product or service, shown as a percentage of the production cost.