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• C) $10,000 cash is withdrawn by the owner for personal use.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:

Direct Labor-Hours

Another measure for the worker-hours spent directly on the manufacturing of goods, important for tracking production efficiency and labor costs.

Overhead Rate

The rate at which indirect costs are allocated to products or services, often used in calculating the total cost of production.

Fixed Overhead

Regular, fixed costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Capacity

The maximum amount of goods or services a company can produce or deliver in a given period with existing resources.