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Solution To The Test Or Question With  An Example & Assumptions The correct answer is “True” , as Capital Expenditures (CapEx) is added to the cost of Plant Assets , so  the book value or written down value of plant assets are also increased. For example, if a machinery costing $5000, having useful life of 10 years with no salvage value, are depreciated on straight line method at 10%. Then its book value for first year is calculated as shown below:                                   (Assuming No Additional Installment Is Made) Book Value = Cost of Machinery - Accumulated Depreciation Book Value = $5000 - $500 = $4500 Here: Depreciation per year = $5000 X 10% = $500 Accumulated Depreciation = $500 If an additional installment of $1000 is made to machinery, then its cost increased to $6000 ($5000 + $1000) Now, Book Value = Cost of Machinery - Accumulated Depreciation Book Value = $6000 - $600 = $5400 Here: Depreciation per year = $6000 X 10% = $600 Accumulated De

The correct answer of this MCQ is (c), as utilization of a prompt payment incentive from seller to buyer gives him a Sales Discount , so he bought goods / merchandise at a discounted price and the seller sold goods at Discount to encourage buyer to buy and hence increased the Sales of his business for the accounting period. So, in this case, Sales Returns and Sales Allowances are not created and hence not debited in the journal entry while Sales Discount is debited which lowers the cost of goods or merchandise i.e., sales discount is a Contra Revenue Account which is deducted from Gross Sales on Income Statement.

Both Trade Discount and Quantity Discount are types / kinds of Discount , but these two have some main differences shown below. Trade Discount is offered by sellers to buyers at the price list or catalog price because it is already deducted by sellers from listed price before the selling price / invoice price is set. It is not recorded in any of company ‘s financial statements. Quantity Discount is an incentive given by sellers to buyers to buy more than the specific quantity of goods or services e.g., buy more than 2 products. It is given in an excess of trade discount. It reduces per unit cost of the products.  It is included / added in  t he  Cas h  Discount. For example, if the selling company offered 10% trade discount of catalog price ($500) for furniture to its customers, then the selling price is $450 (500 - (500 X 10%). So $50 is trade discount which is deducted from catalog price. Now, if the seller offered quantity discount i.e., if buyers buy more than 2 chairs,

The correct answer is (A), as when Current Assets decrease and Current Liabilities  increase, the Current Ratio decreases as shown from below example: Suppose in the 2022, the balance sheet of ABC Company shows Current Assets = $80 and Current Liabilities = $50 Current Ratio = Current Assets / Current Liabilities = $80 / $50 = 1.6% Suppose, In 2023, Current Assets decreased to $60 and Current Liabilities increased to $70 (from balance sheet of ABC Company) Now we have:              Current Ratio = Current Assets / Current Liabilities = $60 / $70 = 0.85714% So, the current ratio decreased from 1.6% to 0.85714% Hence, it is proved that Current Ratio decreases when current assets decrease and current liabilities increase or the lesser the current assets are, the lesser is current ratio and vice versa.  The more the current liabilities are, the lesser is current ratio and vice versa.

Solution To Multiple Choice Question (MCQ) The correct answer is (b), as Cash Payments Journal is used to record cash payment transactions only. “Payment of employees’ Salaries” is a cash payment transaction in which cash account and salaries accounts are involved. Cash is going out of the business due to the payment of salaries made to employees during the current accounting period.

Here is the Solution of Multiple Choice Question “The Proper Journal Entry To Purchase A Computer Or A Laptop Costing $1,350 On Account / Credit To Be Utilized Within The Business Would Be” The correct answer is (b), as Purchased of Computer On Account Or Credit to be used in the business and not for resale purposes, is categorized under Office Equipment on balance sheet i.e., Purchased of a computer (a Fixed Asset ) on account increased computer into the business, so, according to the Rules Of Debit And Credit , we debit office equipment account of $1,350 and credit Accounts Payable Account (a Current Liability ) of $1,350 as liability to the business also increased. The company will pay for the computer bought on account and that time no cash is paid to the accounts payable or vendor.