Classic Artists' Services Signed a Contract with a Maintenance Service

question 105

Multiple Choice

Classic Artists' Services signed a contract with a maintenance service company to maintain a building that Classic will use for office purposes.The contract states that the work will begin work on February 1 and end on May 31.Classic Artists' will pay the maintenance service company $16,000 at the end of May.It accrues Maintenance Expense at the end of every month.What is the balance in the Accounts Payable account for amounts owed to the maintenance service company at the end of March?

• A)Debit balance of $16,000
• B)Credit balance of $8,000
• C)Debit balance of $8,000
• D)Credit balance of $16,000

Understand the impact of a bargain purchase option on the classification and advantages of a lease.

Evaluate the potential financial and accounting implications of a lease agreement.

Appreciate the significance of disclosing lease agreements in financial statements.

Recognize the tax implications and restrictions related to leasing for tax avoidance purposes.

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Definitions:

Summary of Significant Accounting Policies

A section in financial statements outlining the major accounting policies and methods used by an organization, ensuring transparency and consistency.

Inventory Method

An accounting approach used to evaluate and manage the merchandise or goods a company has in stock, affecting how the cost of goods sold and ending inventory are reported.

Financing Method

A strategy or process by which a company raises capital or funds to operate, expand, or invest in projects.

Cash Flow Statement

A cash flow statement is a financial document that provides aggregate data regarding all cash inflows and outflows a company receives from its operating, investing, and financing activities.