If Equipment Is Purchased for Cash

question 29

Multiple Choice

If equipment is purchased for cash:

• A) one asset increases and another asset decreases.
• B) an asset increases and a liability increases.
• C) an asset decreases and a liability decreases.
• D) an asset decreases and shareholders' equity decreases.

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Definitions:

Factory Overhead

All indirect costs associated with the production process, such as utilities, maintenance, and salaries for managers.

Overapplied Overhead

A situation where the allocated manufacturing overhead costs are more than the actual overhead costs incurred.

Overhead Incurred

The actual indirect costs experienced by a company during production, including utilities, rent, and salaries of employees not directly involved in production.

Overhead Applied

The allocation of overhead costs to goods produced based on a predetermined rate.