Capitalizing Costs That Should Be Expensed

question 20

Multiple Choice

Capitalizing costs that should be expensed:

• A) is a practice mostly found in large, well-established companies.
• B) usually has no effect on net income.
• C) has the effect of increasing net income by the same amount of the capitalized costs.
• D) is a healthy practice if they are written off shortly after the transaction takes place.

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Definitions:

WARP

Weak Axiom of Revealed Preference, a theory in economics that assumes if a consumer prefers product A over B when both are available, then they will not choose B when A is available.

Bundle

An assortment of items or services combined and offered for sale as a complete set.

Laspeyres Price Index

A measure of inflation computed by taking the ratio of the total cost of purchasing a specified basket of goods at current prices to the cost of those same goods at base-year prices.

Base Year

A base year is a specific year against which economic or financial data are measured and compared. It often serves as a reference point for calculating indexes and growth rates.