In Which of the Following Situations Would the Largest Amount

question 120

Multiple Choice

In which of the following situations would the largest amount be recorded as an expense of the current year? (Assume accrual basis accounting.)

• A) $4,000 is paid in January for equipment with a useful life of four years.
• B) $1,800 is paid in January for a two-year fire insurance policy.
• C) $10,000 cash is withdrawn by the owner for personal use.
• D) $900 is paid to an attorney for legal services rendered during the current year.

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Definitions:

Unlevered Cost

The cost of funding a project without any debt, reflective of the project's risk as if financed entirely by equity.

Annual Coupon

The yearly interest payment made to bondholders, typically expressed as a percentage of the bond's face value.

Tax Rate

The slice of income or profits that is claimed by the government from corporations or people in the form of taxes.

Break-even Level

The point at which total costs and total revenue are equal, resulting in no net loss or gain from business operations.