If Equipment Is Purchased for Cash

question 29

Multiple Choice

If equipment is purchased for cash:

• A) one asset increases and another asset decreases.
• B) an asset increases and a liability increases.
• C) an asset decreases and a liability decreases.
• D) an asset decreases and shareholders' equity decreases.

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Definitions:

FIFO Method

"First In, First Out," an inventory valuation method where the oldest stock is sold first, assuming that goods are sold in the order they were acquired.

Conversion Costs

The sum of labor and overhead costs required to convert raw materials into finished goods.

Equivalent Units

A method to express the amount of work done on partially completed goods in terms of fully completed units.

FIFO Method

An inventory valuation method that assumes items bought or manufactured first are sold first, standing for "First In, First Out."