A manufacturer of plastic bottles for the medical trade purchases a new compression blow molder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?
A) It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows.
B) It will be depreciated over time on the income statement and subtracted as Inventory on the statement of cash flows.
C) It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows.
D) It will be subtracted from Gross Profit on the income statement and therefore, not be recorded separately on the statement of cash flows.

Question

Quizplus · Accepted Answer

The cost of the new compression blow molder will be recorded as a capital expenditure on the statement of cash flows and will be depreciated over time on the income statement. This is the generally accepted accounting practice for long-lived assets, such as equipment, and allows for the cost of the equipment to be spread out over its useful life, rather than recorded all at once. Therefore, the correct answer is A.

A Manufacturer of Plastic Bottles for the Medical Trade Purchases