An Auto Body Shop Is Trying to Decide Whether or Not

question 126

Multiple Choice

An auto body shop is trying to decide whether or not to purchase a new piece of diagnostic equipment.Which of the following costs would not be relevant to the decision?

• A)The cost of the new equipment
• B)The increase in property taxes as a result of purchasing the expensive equipment
• C)The book value of the old equipment
• D)The cost of training a technician to operate the equipment

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Definitions:

Unrealized Gain

An increase in the value of an asset that has not been sold yet; hence, the gain is not reflected in the income statement.

Stock Investment

The purchase of shares in a company with the expectation of earning a return in the form of dividends or capital gains.

Dividend

A portion of a company's earnings distributed to its shareholders as a return on their investment.

Short-Term Investments

Financial assets that are easily convertible into cash or are expected to be converted into cash within a short period, usually one year or less.