Gomez Service Company Paid Its First Installment on a Note

question 117

Multiple Choice

Gomez Service Company paid its first installment on a note payable in the amount of $2,000. How will this transaction affect the accounting equation?

• A) Increase Liabilities (Notes Payable) and decrease Assets (Cash)
• B) Decrease Assets (Cash) and decrease Stockholders' Equity (Note Payable Expense)
• C) Decrease Assets (Cash) and decrease Assets (Notes Receivable)
• D) Decrease Assets (Cash) and decrease Liabilities (Notes Payable)

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Definitions:

Resource Consumption

The amount of resources used by a company or process, which could include materials, energy, or labor.

Idle Capacity

Unused production capability in a manufacturing process or facility.

Plantwide Overhead Rate

A single overhead rate calculated for an entire manufacturing plant, used to allocate indirect costs to products based on a common base such as labor hours or machine hours.

Activity-Based Costing

A cost accounting method that assigns costs to products or services based on the activities that go into producing them.