You Purchase a Pizza Oven That Is Expected to Last

question 51

Multiple Choice

You purchase a pizza oven that is expected to last 10 years for $15,000. How do you account for the economic cost of the oven?

• A)Expense the oven, taking a write-off for the entire price in the first year.
• B)Amortize the cost over the 10-year life of the oven, resulting in a cost of $1,500 per year.
• C)Calculate the value of renting the oven to someone else and use that as your cost.
• D)The cost is the price of the oven minus any revenue made selling pizzas made in the oven.

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Definitions:

Opportunity Rate

The rate of return of a foregone investment compared to the potential return on the chosen investment.

Net Float

The difference between checks written against and deposited in an account, reflecting the time lag between writing a check and clearing it.

Available Balance

The amount of funds in an account that are accessible for withdrawal or use, considering any pending transactions.

Book Balance

The amount of money on record in a company’s financial accounts, often compared to the available cash balance to identify discrepancies.