Multiple Choice
Which of the following types of liabilities has the lowest priority of claims in bankruptcy proceedings?
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9. Current Liabilities
Types of Liabilities
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Which of the following expenditures should be recorded as an asset?
A
Purchase of equipment for company use
B
Payment of employee salaries
C
Payment of utility bills
D
Payment of monthly rent
Verified step by step guidance1
Understand the concept of an asset: An asset is a resource owned by a company that provides future economic benefits. Expenditures that result in acquiring or improving such resources are recorded as assets.
Analyze the nature of each expenditure: Determine whether the expenditure provides future economic benefits or is consumed immediately. For example, payments for salaries, utility bills, and rent are typically expenses because they are consumed in the current period.
Focus on the purchase of equipment: Equipment is a tangible asset that provides future economic benefits over its useful life. The cost of purchasing equipment should be recorded as an asset because it is not consumed immediately but used over time.
Consider the accounting treatment: When recording the purchase of equipment, debit the Equipment account (an asset account) and credit Cash or Accounts Payable, depending on how the purchase was made.
Review the other expenditures: Payments for employee salaries, utility bills, and monthly rent are recorded as expenses because they do not provide future economic benefits but are consumed in the current period.
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