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 Inventory on the statement of cash flows. B. It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows. C. It will be subtracted from Gross Profit on the income statement and therefore, not be recorded separately on the statement of cash flows. D. It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows.

Question

Blaine Ali

Business

25 May, 16:37

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 Inventory on the statement of cash flows. B. It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows. C. It will be subtracted from Gross Profit on the income statement and therefore, not be recorded separately on the statement of cash flows. D. It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows.

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Gabrielle · Answer 1

"D"

Explanation:

This is an addition of an asset to the bottle production plant and not an inventory item.

In this regard, it should be depreciated over its useful lifetime, putting into consideration the scrap value and the yearly depreciation value is expended to the income statement for the accounting period.

On the cash flow statement, the purchase price is considered an outflow and is treated as a capital expenditure outflow on the statement.