Which of the following is typically considered a fixed asset for a contracting business?
Correct Answer
A) Heavy construction equipment
Heavy construction equipment is a fixed asset because it's a long-term tangible asset used in business operations for more than one year. The other options are current assets that are expected to be converted to cash within one year.
Why This Is the Correct Answer
Heavy construction equipment is classified as a fixed asset because it meets all the criteria: it's a tangible asset with physical substance, it's used in business operations rather than sold, it has a useful life extending beyond one year, and it represents a significant investment. Fixed assets are also called property, plant, and equipment (PP&E) on financial statements. Construction equipment like excavators, cranes, and bulldozers are essential long-term assets that generate revenue over multiple years through their use in various projects.
Why the Other Options Are Wrong
Option B: Accounts receivable from completed projects
Inventory of building materials is a current asset, not a fixed asset. These materials are purchased with the intention of being used or sold within one year as part of normal business operations, making them highly liquid assets that convert to cash relatively quickly.
Option D: Cash in checking account
Cash in a checking account is the most liquid current asset available to a business. It's immediately available for use and doesn't need to be converted, making it a current asset rather than a fixed asset.
Memory Technique
Think 'FIXED = PHYSICAL + PERMANENT' - Fixed assets are physical items that permanently stay with the business for multiple years (equipment, buildings, vehicles).
Reference Hint
Business and Finance chapter covering Balance Sheet components and Asset Classification
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