Why Is the Placing of an Order with a Supplier

question 14

Multiple Choice

Why is the placing of an order with a supplier not regarded as a transaction?

• A) Because the computer software cannot record it.
• B) Because the entity may cancel the order.
• C) Because an exchange between the entity and the supplier has not yet occurred.
• D) The placing of an order is regarded as a transaction.

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Definitions:

Capital Lease

A lease classified by the lessee as an asset and liability on the balance sheet because it effectively transfers substantially all risks and rewards of ownership to the lessee.

Executory Costs

These are costs associated with fulfilling the terms of a contract, excluding the direct material and direct labor costs, such as utilities, insurance, and property taxes involved in leasing.

Bargain Purchase Option

A lease provision allowing the lessee to purchase the leased asset at the end of the lease term at a price significantly lower than the expected fair market value.

Minimum Periodic Rental

In leasing agreements, it refers to the lowest amount that the lessee must pay over a specified period.