Operating Losses Incurred During the Start-Up Years of a New

question 9

Multiple Choice

Operating losses incurred during the start-up years of a new business should be

• A) accounted for and reported like the operating losses of any other business.
• B) written off directly against retained earnings.
• C) capitalized as a deferred charge and amortized over five years.
• D) capitalized as an intangible asset and amortized over a period not to exceed 20 years.

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Definitions:

Common Size Income Statement

An income statement in which each line item is expressed as a percentage of sales, facilitating comparison across companies or periods regardless of size.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor expenses.

Sales

The total amount of goods or services sold by a company in a particular period of time.

Z Score Model

A statistical model that predicts the probability of a company going bankrupt based on several financial ratios derived from the company's financial statements.