Mesquite,Inc.is ordering a new machine to be used in its manufacturing facility.Which of the following events would trigger the recognition of the machine and related liability on Mesquite's books?
A)The company generates a purchase order.
B)A technician installs the machine on the floor of the manufacturing facility.
C)The company receives the machine.
D)The company pays the bill from the supplier.

Question

Quizplus · Accepted Answer

The recognition of the machine and related liability would occur when the company receives the machine. Until the machine is received, Mesquite does not have a legal obligation to pay for it, nor does it have ownership of the machine. Once the machine is received, Mesquite would record the liability for the purchase and the asset for the machine. The other options listed are events that precede or follow the recognition of the liability and asset.