Office Administrative Assistant Practice Exam

If a DME company purchases a used delivery truck for $25,000, what amount represents the liability?

1. $5,000

2. $25,000

3. $20,000

4. The total cost of the truck

The correct answer is: $20,000

When a durable medical equipment (DME) company purchases a used delivery truck for $25,000, the concept of liability refers to the financial obligation incurred to finance that purchase. If the company paid part of the cost upfront, say $5,000, the remaining balance represents the liability that the company would account for as an outstanding debt. In this scenario, if they financed the truck, they would owe the remainder, which is calculated by subtracting any down payment from the total purchase price. If the company paid $5,000 upfront, the outstanding liability would indeed be $20,000. That remaining amount would be the obligation to the lender or financing company. It’s important to note that the total cost of the truck represents the asset value acquired, while the down payment impacts how much of that cost is immediately out of pocket versus how much is financed and hence creates a liability. In cases where no down payment is made, the entire purchase price would typically be considered the liability. However, based on the context provided, the amount that influences the company’s debt position is represented correctly.