The Following Entry Is Taken from the Journal of a Merchandising

question 63

Multiple Choice

The following entry is taken from the journal of a merchandising company:
What is the effect of this entry on the accounting equation?

• A)Assets and equity will increase.
• B)Assets and liabilities will increase.
• C)Assets and equity will decrease.
• D)Assets will decrease and equity will increase.

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Definitions:

Accumulated Depreciation

The total depreciation for an asset that has been recorded up to a specific point in time, reflecting its decline in value.

Fair Market Value

The price at which an asset would exchange hands between a willing buyer and seller, both having reasonable knowledge of all necessary facts.

Income Tax Method

When plant assets are exchanged, tax law says the gain or loss must be absorbed into the cost of the new asset.

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment, intended to improve long-term operational efficiency.