Which of the Following Statements Represents Good Advice Prior to Making

question 92

Multiple Choice

Which of the following statements represents good advice prior to making capital expenditures?

• A)Capital expenditures represent borrowed funds that must be repaid in one year or less.It is important to seek the advice of your accountant prior to committing.
• B)Capital expenditures represent investment in inventories and expendable type assets that the firm will use in one year or less.It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.
• C)Most firms do not value capital expenditures on their balance sheets,so it is important to stay abreast of the market value of these assets at all times,in case you want to sell them.
• D)Capital expenditures are major investments - meaning they require large sums of funds.Companies should weight all possible options before committing available resources to projects that take significant amounts of funds and extended time.

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Definitions:

Depreciation Rate

A percentage rate used to calculate the decrease in value of an asset over time for accounting and tax purposes.

Units-of-Activity

A depreciation method that allocates the cost of an asset over its useful life based on the units it produces or hours it operates.

Straight-Line Depreciation

is a method of depreciating an asset where the asset's cost is evenly spread over its useful life, resulting in equal depreciation expenses each year.

Double-Declining-Balance

An accelerated method of depreciation which doubles the straight-line depreciation rate, applying it to the declining balance of the asset's cost.