A Manufacturer of Plastic Bottles for the Medical Trade Purchases

question 97

Multiple Choice

A manufacturer of plastic bottles for the medical trade purchases a new compression blow moulder for its bottle production plant.How will the cost to the company of this piece of equipment be recorded?

• A)It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows.
• B)It will be depreciated over time on the income statement and subtracted as Inventory on the statement of cash flows.
• C)It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows.
• D)It will be subtracted from Gross Profit on the income statement and therefore not be recorded separately on the statement of cash flows.
• E)It will be depreciated over time on the income statement and added as accounts payable on the statement of cash flows.

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Definitions:

Investing Activities

Financial transactions related to the acquisition or sale of long-term assets and investments.

Statement of Cash Flows

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company, showcasing operational, investing, and financing activities.

Accounting Assumptions

Accounting Assumptions are foundational principles followed in the preparation of financial statements, such as the consistency, going concern, and accrual basis.

Conventions

Established practices or standards in accounting that guide the preparation and presentation of financial statements.